Woolworths, Coles key to attracting Sydney retail investors: HTW
Sydney shopping centres anchored by either Woolworths or Coles have proven attractive to retail property investors in 2011, according to the December property market report by Herron Todd White.
The report notes that outside of the Sydney CBD market investor interest returned over 2011, with a number of transactions on investment-grade properties.
“This heightened activity follows on from a strong 2010, which saw the re-emergence of private investors and property syndicates, previously priced out of the market,” the December report notes.
“The increase in investor interest has been focused firmly on properties in the $5 million to $25 million range, which feature a strong anchor tenant, generally a Woolworths or Coles supermarket.”
Recent shopping centres transactions outside of the Sydney CBD include the sale in October of Dee Why Market for $22 million, on an initial yield of 8.8% and 248 Church Street Parramatta for $19.55 million, on an initial yield of 7.9%.
The Dee Why Market is anchor tenanted by Woolworths, while Parramatta centre is anchored by rival Aldi.
Both these sales, says HTW, have “reaffirmed the strength of this sector”.
“Outside of this price range, sales activity has been limited.”
Currently up for sale is the 3,900 square metres Woolworth’s Neutral Bay store on the Sydney North shore bringing in net income of $1.9 million per year and fully leased by the supermarket until 2014. The expressions of interest campaign run by Savills agents Simon Muirhead and Ben Stewart ends on December 14.
Herron Todd White valuers are by no means the only ones to note the value Coles and Woolworths bring to shopping centres.
In its October annual report, Charter Hall Retail REIT said it would continue to re-weight its shopping centre portfolio in favour of Australian shopping centres anchored by Coles and Woolworths after the supermarket groups helped the REIT deliver profits of $62.9 million for the year off a portfolio valued at $1.93 billion.
Similarly, in August Mirvac said its retail portfolio has defied the current retailing gloom by delivering solid growth, with food majors Coles and Woolies accounting for a quarter of rental income.
The picture is less rosy in the Sydney retail strip market where increased vacancy and concerns over the rental growth outlook has restricted the level of demand from investors.
“Demand from owner occupiers also remains low, with the dual impact of weak retail sales and high lending costs preventing new start ups and limiting expansion plans.
“There are however a few exceptions to this rule. Quality properties in locations with minimal vacancy remain in high demand. For example a strata retail suite in Potts Point sold for $850,000, equating to $9,043 per square metre.
“At the top end of the market the dual impact of a lack of properties being actively marketed and a reduction of potential buyers has resulted in a continued lack of property transactions.
“Over the past 11 months the most expensive retail property sold in Sydney was for ($42.8 million) Bridgepoint, Mosman.
The report notes that while the Westfield Sydney City technically opened in December 2010, the majority of the stores including the much hyped ‘Zara,’ opened their doors in the first half of 2011.
“Westfield, coupled with the redevelopment of the Mid City Centre in 2010, has revitalised the Pitt Street Mall precinct, luring high end and international retailers to Sydney.
“Despite the initial relocation of many prime retailers into the new developments from properties surrounding Pitt Street Mall, super prime retail rents remain firm, with new retailers eager to benefit from location near these new centres.”
According to a September report by Cushman & Wakefield, retailers on Pitt Street Mall are paying 33% more per square metre than 12 months ago with the average rent equating to more than $10,000 per square metre.