Convenience Centres are Hot Property

14 April 2021

The advantages of long term leases, predictable cash flows and high quality tenant covenants continue to draw investment capital to Convenience Centres.

Whilst recent sales of sub regional and regional sized shopping centres are pointing to a softening of cap rates, the quality of the future cash flow means that Convenience based centres are being priced at sharper rates. Discretionary tenants in Regional Centres are struggling against the impacts of COVID and from structural changes from online shopping whilst owners of the assets are facing the loss (or potential loss) of Target, Big W and Myer, who are each downsizing their platform.

These challenges are already leading the larger Mall owners to accept lower rents and for the need to invest additional capital to attract tenants and customers. Neighbourhood Convenience Centres are not completely immune to these challenges but they do offer a far more resilient offer.

JLL are currently marketing two Supermarket based centres, at Bulli and Albury and have been overwhelmed with interest from high net worth investors and local and national syndicators, keen to lock in on a long term stable income-producing asset.

The Bulli Centre is located 12km north of the Wollongong CBD, and contains a brand-new 10 year lease to Woolworths (expiring 2031 with options) along with 4 non discretionary retail tenants.

The Centre, which was developed by Woolworths, is highly accessible to the local catchment area with access off the Princess Highway and Malloy Street. The property generates $1.4m per annum and is likely to sell for in excess of +$28m, reflecting a yield of <5.25%.

Further south, the Albury convenience centre is located at 618 Young Street and occupies a site of 14,240sqm. The Centre has been repurposed from a previous Bunnings tenancy by a syndicate managed by Findex. The property now comprises two tenants (Harris Farm Markets and AMart Furniture) who occupy the 9,690sqm building with an average lease expiry of just under 10 years. Harris Farm Markets now have 29 stores (predominantly NSW) and are expanding into Queensland and Victoria to take on Coles and Woolworths.

The Albury & Wodonga towns which straddle the NSW / VIC border combine to form Australia’s 13th largest non-capital city with nearly 95,000 residents. The push to move to the regions will see the city forecast to achieve a population of over 126,000 by 2036, reflecting an average annual growth rate of 1.64%.

Both Albury leases have predictable annual rental escalations and each with multiple lease options. The property generates $1.85m and is expected to also sell near to $30m.

Meanwhile CBRE are marketing a Coles based Convenience Centre in Ferny Grove, Queensland. The 4,490sqm Centre occupies a 9,09sqm corner site positioned conveniently beside two school sites. The Centre is anchored by Coles and supported by 19 specialty tenants. The property was acquired by WA-based syndicator Kerching Capital in 2018. The property now generates $1.13m in net income and is also expected to attract strong interest from buyers.

The EOI campaigns for all 3 Centres conclude on the 29th April 2021.

Our Views

We expect our pricing on these Centres is fairly accurate and that any bid will around these numbers make a short list with the better counterparty chosen to make a final offer.

We seek to avoid regional markets unless the tenant covenants are long term and supported by strong credit. We have not reviewed the tenants at Albury to make a judgement on their credit worthiness.

The Bulli Centre is the pick of the 3 and will sell for the sharpest yield. Being a new asset, the property will also benefit from significant depreciation allowances.

The Information Memorandum for Albury & Ferny Grove is attached.

Disclaimer: The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.