Primewest paid $34.75 million for the Woolworths Spring Farm Shopping Centre.

Institutions outmuscle private investors for neighbourhood malls

Larry Schlesinger|Sep 03, 2020

Institutional investors are emerging as dominant buyers of supermarket-anchored neighbourhood malls in the post-COVID-19 age, replacing the traditional buyers of such assets, cashed-up private investors.

Of the five major retail centres to have sold since the onset of the pandemic, four were bought by major ASX-listed property players, two by mall landlord Home Consortium and two by fund manager Primewest, according to a report by valuation and advisory firm m3property.

Before the pandemic, three of the five supermarket-anchored centres that sold were bought by private investors, with the two institutional buyers being smaller unlisted fund managers. Harrington Property and Clarence Property.

Analysis by m3property shows the average price per square metre paid was significantly higher post-COVID-19 ($6700 per sq m vs $5800) as institutional investors opened up their wallets. Yields tightened marginally to 5.58 per cent from 5.72 per cent pre-COVID-19.

m3property retail director Shaun O’ Sullivan said demand for these assets had intensified with institutional investors matching the privates on pricing, “something which had not occurred in recent years”.

“In an investment environment short on reliability of returns it’s hardly surprising that institutional fund managers are attracted by these so-called recession-proof assets and where necessary competing more strongly than they may have done pre-COVID,” Mr O’Sullivan said.

“Our analysis shows that despite these assets having shorter weighted average lease expiries and a lower percentage of income from the supermarket anchors, buyers have purchased on higher prices and tighter yields.”

In June, Home Consortium acquired three supermarket-anchored shopping centres from Woolworths for $127.8 million with a plan to spin them off along with other properties into a “daily needs” real estate investment trust (REIT).

The Daily Needs REIT will hold 13 supermarket-anchored and daily needs centres worth about $550 million.

In April and May, Primewest acquired NSW neighbourhood centres at Spring Farm for $34.75 million and Pemulwuy for $35 million. The Australian Financial Review reported that Singapore’s sovereign wealth fund GIC was the capital partner of Primewest’s $300 million retail property fund.