This article is from the Australian Property Journal archive
QIC has offloaded two non-core large format retail centres on the Gold Coast and in Melbourne for a combined $163 million, respectively to ASX-listed Primewest and a buyer believed to be Harvey Norman, as the sector is expected to continue outperforming its retail peers in 2021.
Perth-based Primewest paid $66 million for the 14,782 sqm Robina Home + Life complex, and will use the asset to seed its new PW Large Format Retail Trust No. 2 offering.
QIC developed In 2017, the centre features 13 large format retail tenancies, anchored by Nick Scali and The Good Guys, and including The Reject Shop, Super Cheap Auto and Petstock, as well as a café, for a gross lettable are of 14,872 sqm. It is on a 36,170 sqm parcel with parking for 315 cars.
“The company remained very confident in the LFR sector and saw a clear opportunity for growth at Robina Home + Life,” Primewest executive chairman John Bond said.
“Robina Home + Life is at the epicentre of the rapidly expanding Robina community which will benefit from more than $17 billion worth of planned investment in the immediate Gold Coast vicinity.”
Primewest has 18 large format assets under management totalling over 300,000 sqm with another centre under development. Bond said the large format retail sector was particularly appealing as it shown significant growth during COVID-19 and continued to benefit from the strong national residential market.
The Robina property was sold through an expressions of interest process managed by Peter Tyson, Jon Tyson and Steve Lerche of Savills Australia, with Jacob Swan, Sam Hatcher and Nick Willis of JLL. The complex is situated at 550 Christine Avenue, in the Robina Town Centre precinct, and adjoins Bunnings Warehouse, which QIC also divested in December for $28.05 million.
In a separate campaign, QIC has also sold Watergardens Homeplace in Taylors Lakes in Melbourne’s north west for $97 million.
Watergardens Homeplace
A report in IPE Real Assets stated that industry sources pointed towards Harvey Norman as the buyer of the 25,930 sqm centre. The electronics, whitegoods and furniture retailer owns most of its stores and owns an extensive property portfolio worth circa $3.1 billion, and has also just acquired the Geraldton Homemaker Centre in Western Australia for more than $28 million.
Harvey Norman benefited from the increased spending on household items during the pandemic, recording a 116% increase in first half profit, and 25.8% increase in revenue.
The centres were jointly held by QIC Property Fund and the QIC Shopping Centre Fund.
Peter Tyson said the Robina asset campaign campaign demonstrated significant investor demand for the large format retail sector, which is being driven by a combination of macro factors, including strong market demand for quality income streams, low cost of debt and the uplift in trading performance across the home improvements sector.
Retail transaction momentum building
Retail investment transactions reached $4.8 billion in 2020, according to JLL, as momentum built throughout the year, with more than half of the year’s volume achieved in the final quarter.
Neighbourhood retail and large format retail assets accounted for $3 billion of total retail transaction volumes – almost two thirds of all investment in 2020, as spending patterns changed and drove an investment shift to non-discretionary retail assets and homeware-based tenants on long leases. Neighbourhood centre activity saw $1.6 billion in deals from 37 transactions, in-line with the level recorded in 2019 ($1.7 billion).
The trend has carried through into the early part of this year, according to The Data App. Its new research shows the value of all retail property transactions in the March quarter was 13.5% lower than in 2020, at $275.55 million.
According to JLL’s Andrew Quillfeldt, large format retail tenants were among the key beneficiaries of changes in spending habits in 2020, and the build-up of household savings and increase in home building and renovation activity is likely to support the sub-sector in 2021.
Household goods sales in Australia grew by $10 billion, or 17.1% year on year in December. The federal government’s HomeBuilder package also supported the growth in home-related spending.
“While there has been a significant ‘pull-forward’ of purchases of household goods over the last year, acceleration in home building and renovation activity is likely to continue to support large format retail tenant performance over the next one to two years,” Quillfeldt said in JLL’s latest Shopping Centre Investment Review & Outlook.
“In addition to a surge in household goods spending, rent collection rates were high, the supply of traditional homemaker space has also been low for the last few years and the vacancy rate fell from 4.6% (4Q19) to 3.4% (4Q20).
“The investment proposition for large format retail is compelling, particularly for assets in suitable locations for future ‘higher and better use’ conversion,” he said.
Quillfeldt said that a transition is expected from the stimulus-induced retail spending in 2020 to a confidence-driven tailwind from household wealth in 2021, with house price forecasts continue to be revised upwards, the share market on a high, and consumer confidence likely to be supported by a recovering labour market and the vaccine roll out.
JLL’s Jacob Swan said the theme of risk aversion in retail is likely to prevail in 2021, with a strong focus on non-discretionary retail assets, large format retail and long WALE assets.
“There is potential for further yield re-rating in these sub-sectors. We also expect to see more private investors and syndicates actively seeking small sub-regional assets, below $200 million, which are largely convenience-based.”
Rob Ellis, director of The Data App, said the appetite for convenience, neighbourhood and large format centres has remained solid in 2021, while transactions of large shopping centres has been more subdued. Research from The Data App shows the change in shopping centre demand has been reflected in the valuation parameters, with the prices per sqm around 12% higher than a year earlier, while cap rates have also tightened. However, the cap rate for sub-regional shopping centres has increased over the past 12 months.
