Improving economic fundamentals driving sales in regional shopping centres

Improving economic fundamentals driving sales in regional shopping centres

1 June 2018

Regional shopping centres offering premium services and local neighbourhood complexes that are very convenient are dominating asset trading this year, reports The Australian.

The top end of the market is flourishing. A deal is imminent by the billionaire Alter family to sell stakes in the Werribee Plaza and Pacific Epping shopping centres in Melbourne, worth close to $1 billion.

QIC Global Real Estate has been in due diligence to buy the interest off-market via Colliers International and the price could reflect a yield in the low 4 per cent range.

In Sydney, US property giant Blackstone is also poised to double its money on its Top Ryde City Shopping Centre investment, putting the site on the block for $700m via JLL.

But a number of malls “stuck in the middle” and poorly positioned for the onslaught of online retailing are either not selling or trading at close to book value.

Much of the action this year has been in neighbourhood centres, where a series of deals with gravity-defying yields have been struck.

In one of the latest plays, Melbourne’s Resofsky family has sold Bellarine Village Shopping Centre in Newcomb, Victoria, for $36.5m on a passing yield of 5.8 per cent, says the AFR.

The result was well above market expectations of around $33 million when it was listed for sale in April. The buyer was a Melbourne private investor from St Albans in the north western suburbs who runs a commercial plumbing business.

The mall sold with four vacancies. Fully-let the yield would have been about 6.3 per cent.

The key attraction is improving economic fundamentals in regional cities.

Investors have splashed out $420 million buying retail and commercial property investments in regional Victoria over the past 12 months, a 29 per cent increase over the previous corresponding period.

CBRE national director investments, Mark Wizel said demand for well-positioned assets with development and rental upside had not declined, despite talk of an investment hiatus.

“We are now managing a much greater level of inquiry for properties in areas like Geelong, Bendigo, and Ballarat, among others, as the market fundamentals of those cities strengthen on the back of strong population growth and forecasts of more to come,” Mr Wizel said.

Other deals include The Village Bacchus Marsh bought by Colin De Lutis for $61.65 million from Abacus Property Group on a seven per cent yield and the TAC Headquarters Geelong, bought by fund manager Centuria for $115.25 million on a similar return.

Mr Wizel said that regional assets could still be acquired at rates of $3,000 to $5,000 per square metre compared with rates of $10,000 per square metre and more for commercial property in the city centre.

“Regional centres now have all of the fundamental underpinnings to offer investors long-term capital growth and the sort of returns that they would expect from capital city markets.

“Geelong is one of Victoria’s fastest growing regions with a forecast 32 per cent increase in population by 2036 and the Bellarine Peninsula is expected to experience an even stronger rate of growth of 63 per cent by 2036.”