Melbourne Woolworths sells on record low 2.46pc yield

The sale was brokered by Marc Leiba and Jonathan Rosenthal of Leiba Commercial, who said they had been unable to find a supermarket investment sale that had transacted on a lower yield.

“The purchaser understands that it is a sharp cap rate, but this is what is required in today’s market to get your hands on trophy assets such as this one, which very rarely come up for divestment,” Mr Rosenthal said.

Setting records

The previous benchmark may have been the $17.115 million sale of a free-standing Coles supermarket on a large site in Clayton, in Melbourne’s south-eastern suburbs, on a 2.6 per cent yield – but that was acquired as a future land bank.

On a pure investment basis, with no development upside, that record was most likely held by a Coles supermarket in Mentone, in Melbourne’s Bayside, which was bought by a Chinese investor for $15.3 million at auction in December 2019 on a yield of just 3.4 per cent.

Before that, it was the $32 million sale in 2016 of the Woolworths on Church Street in affluent Brighton, also in Bayside, on a 3.8 per cent yield to a Melbourne family.

The low yield is a reflection of the depth of demand for convenience-based retail assets, which traded strongly during the pandemic, the strength of the Coles and Woolworths lease covenant, and record low interest rates.

Mr Leiba said there had been a strong shift among vendors towards off-market deals, given the record results that can be achieved without a public sales campaign.

“[Our vendors] like to keep things confidential and are becoming fully aware that strong sales results and record capitalisation rates can be achieved,” he said.

Supermarkets and neighbourhood centres are part of a group of assets (including healthcare properties and childcare centres) that have been coined “essential services” real estate due to the fact they traded throughout the pandemic, and performed strongly.

Sales this year of convenience retail assets have reflected this outperformance relative to more traditional, discretionary malls and the weight of investor capital seeking exposure to the asset class, including in regional areas.

In January, a Woolworths supermarket in Torquay on Victoria’s Surf Coast was bought by a Melbourne buyer for $25.1 million on a yield of 3.65 per cent, while a Wollongong Woolworths in NSW sold this month to local investor Pasquale Lucchitti for $36 million on a 4 per cent yield.

In September, an IGA supermarket at Tugun Beach on the Gold Coast sold at auction for $6.9 million on a 3.94 per cent yield – a new benchmark for IGAs in Queensland, according to Ray White agents Lachlan O’Keeffe and Michael Feltoe.

“Since the beginning of the COVID-19 pandemic supermarkets have been held in increasingly higher regard, with investors seeking out this asset class due to the industry’s strong historical performance and essential nature,” Mr Feltoe said.

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