Hardware battle to push up warehouse prices: Colliers
Investors in stand-alone retail warehouses are set to benefit from a battle for the hardware market between Woolworths and Bunnings, according to Colliers.
Woolworths is taking on Bunnings with its new Masters hardware stores.
It has reportedly secured 80 sites so far, with about 14 stores currently under construction.
Between 10 and 20 Masters stores are anticipated to be operating by 2012.
Woolworths’ entry into the hardware warehouse market will see it compete not only with Bunnings, but with Mitre 10, IKEA, Harvey Norman and Costco for prime warehouse locations.
This is expected to put upward pressure on property and land prices as retailers search for warehouse-sized blocks.
Over the medium term Colliers is forecasting a trend towards increased rental and values associated with these developments.
According to Colliers there is already “fierce competition between market participants, [who often pay] premiums for sites to ensure they lock their competitors out of certain locations”.
“The entry of Woolworths is likely to be a positive for property markets and investors in this type of asset, as it broadens the pool of potential tenants and provides a strong lease covenant,” says Colliers director of research and author of the retail forecast report, Nora Farren.
“The presence and activity of two large players in the market should also improve the depth of the market, and evidence for rental and property values.”
The hardware sector has also benefited from reduced competition from residential developers over the past few years due to funding difficulties, allowing hardware retailers to target these sites.
The Woolworths stores will cost between $20 million and $25 million to establish, depending on whether they are purchased or leased.
Masters stores will comprise an average 13,500 square metres of retail and will stock traditional hardware items, kitchen appliances, whitegoods, light fittings, floor coverings, window treatments, outdoor furniture and children’s play equipment.
The first Masters store will be in Braybrook in Melbourne’s west and is scheduled to open in September or October, 2011.
The battle between the retailing giants comes as demand for renovation materials looks strong.
While residential building activity continues to slump (forecast to fall 13% up until 2011/12) the renovations segment of the housing market to be in “reasonably fit shape”, according to the HIA.
It is forecasting renovations growth of 2.7% in 2011/12 and 4.6% in 2012/13, taking renovations expenditure to just over $33 billion – a record high for renovations expenditure since 2004/05.
Woolworths is targeting urban fringe locations in Victoria and Queensland for its stores, while Bunnings is expanding into inner city and suburban markets, with the focus on NSW, traditionally the domain of independent operators.
This year Metcash committed to a new 82,000-square-metre facility for its hardware business at the Bungarribee industrial estate, in Huntingwood, Western Sydney.
Danks has announced plans for a new 50,000-square-metre Victorian distribution centre at Hoppers Crossing. The new facility more than doubles its previous capacity.
The strong outlook for hardware warehouses will boost the bulky goods property sector, which has struggled in 2011.
NAB rated bulky goods the worst-performing retail property sector in all states in its March 2011 quarterly report.