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Market Insights

29.07.2019

Secure neighbourhood centres buck retail headwinds

Victoria’s neighbourhood shopping centres are on track to record strong 2019 sales results despite negative sentiment around the retail sector generally, according to a CBRE review of the sector.

The review found that while buyers were naturally more cautious around vacancy, pending expiries and the overall performance of the shopping centre itself, they remained attracted to the sub $100 million sector with 2019 sales tracking towards the highest sales by value in at least four years.

According to CBRE Retail Investments Analyst, Annalee Neil, the attraction is based particularly around the heavy weighting towards supermarket share of NLA and the relative insulation from the threat of e-commerce.

The review found that of four sales transacted in 2019, the anchor tenants, including Coles, Aldi and Woolworths, contributed an average of nearly 60 per cent of the total income of the centre. A fifth centre – Aurora Village at Epping – offered co-anchor tenants Coles and Aldi comprising 76 per cent of total NLA.  

By contrast, the review found supermarkets accounted for only six per cent and 18 per cent of total cash flow in regional and sub-regional centres respectively.

Director Investments Mark Wizel, said the results proved retail centres with a weighting towards non-discretionary spend tenants remained one of the favorite investments across all commercial property sectors.

“Like many things, we can’t broad brush the sector, there are green shoots but there are also areas of concern. In the neighbourhood shopping centre sector, it is almost business as usual.

“This has been exemplified by the very strong result with the sale of Coburg North Village along with the incredibly strong buyer depth in the Stockland Tooronga campaign, the unconditional sale of Woolworths Curlewis Shopping Centre and the current strong enquiry for Newcomb Central,’’ Mr Wizel said.

Mr Wizel said the impending sale of the Woolworths/BWS and Aldi anchored Newcomb Central property would bring the total sales value of neighbourhood centres sold this year to more than 2016 and 2017.

“Total sale results this year will surpass 2016 and 2017 and may well surpass 2018 in less than seven months.

“On the one hand this is an extraordinary result for a market which has been battered by low retail trade spending and the increasing online competition, but on the other it makes perfect sense as an asset which continues to offer strong market fundamentals and deliver comparatively healthy returns at virtually any time in the investment cycle.

“The fact that there is a current investment stock shortage underscores just how popular these centres are. Owners are holding tight to arguably the commercial market’s best defensive asset in what are relatively tough times in terms of investment returns generally,’’ Mr Wizel said.     

According to the review sub $100 million sales in 2019 have also included the free standing Woolworths Lara store which sold to a Melbourne investor for $21.55 million on a 5.92 per cent yield while Land Capital was reported as the purchaser of the Mernda Town Centre for $51.5 million. The land only purchase included a permit for a full-line Woolworths supermarket. CBRE managed both campaigns.

Ms Neil said the $160 million worth of free standing supermarkets which sold on an average 5.18 per cent yield over 2018/2019, was further evidence of the demand for defensive assets.   

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