Neighbourhood Shopping Centres Show Resilience

September, 2020

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Neighbourhood Centres Show Resilience Post-COVID-19

Whilst the COVID-19 pandemic has brought significant short-term challenges to ‘bricks and mortar’ retailing in Australia via Government introduced business hibernation and social distancing measures, investor capital has been attracted to the resilient, non-discretionary income profile of Neighbourhood shopping centres.

Deal flow for all shopping centre assets significantly slowed in H1 of 2020, however, the Neighbourhood centre capital market was the most active category with a number of centres being offered to the market and transacting. Despite the negative sentiment around shopping centre investments, our analysis of the transactions indicates that investment metrics have actually
tightened during the pandemic.

Spring Farm, NSW

m3property advised an underbidder

Keysborough, VIC

m3property valued for the purchaser

Sunbury, VIC

Analysis of Pre and Post-COVID-19 Transactions

Comparison summary of the key investment metrics of the transactions

On average, the post-COVID-19 transactions had a similar capital value, major lease expiry and construction date as the pre-COVID-19 transactions. However, on average they were further from the CBD, with an inferior WALE, and a lower weighting of anchor tenant income, weakening the income profile. Despite this, the post-COVID-19 transactions reflected a lower average Equated Market Yield (EMY) and a lower average Internal Rate of Return (IRR), highlighting that investors are willing to accept lower investment hurdles for these assets in a post-COVID-19 environment.

Prestons, NSW

Pemulwuy, NSW


Shaun O'Sullivan


View Profile > VIC

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“In times of economic uncertainty, Neighbourhood centres with strong exposure to non-discretionary consumer spending provide a desirable income profile.”

Shaun O'Sullivan
Director Retail

Post COVID-19 Transactions Properties

  • The charts outline the tenant composition (by income and GLA) of the key retailer categories within the five previously mentioned centres that have transacted post-COVID-19. The income and GLA profile of the centres is dominated by non-discretionary retailers, including supermarkets, pharmacies, health services, food outlets and cafes, as highlighted.


  • These five retailer categories comprise 86% of the gross passing income and 93% of the GLA. This income profile provides the centres with strong exposure to non-discretionary consumer spending, which is desirable in times of economic uncertainty.

Retail Spend – Pre and Post COVID-19

  • Turnover growth during the COVID-19 pandemic for the key non-discretionary tenants of supermarkets, pharmacies and food delivery has performed at the same or stronger levels than pre-COVID as indicated below. Health services and cafes were impacted but have since rebounded to pre-COVID levels nationally. Performance in Victoria is obviously tracking differently to other States and Territories.

  • As expected, non-discretionary/essential spending was less impacted than discretionary spending during the height of the pandemic. Interestingly, both categories bounced back strongly once lockdown restrictions began to ease in July 2020, with discretionary spending growth outstripping non-discretionary spending growth.

Tightening of Investment Hurdles

  • The above graph indicates the gradual tightening of investment hurdles (Equated Market Yields and IRRs) over the past five years with Equivalent Yields falling circa 50 basis points and IRR’s falling circa 75 basis points.

Transaction Volume

  • Transactional volumes for Q4 of 2019 were down on previous Q4’s, and Q2 of 2020 was also well down. The limited supply of assets to the market and the purchaser demand for Neighbourhood centres have contributed to the previously mentioned fall in investment metrics post-COVID-19.

Buyer & Vendor Profile

  • Although acquisitions of modern, Neighbourhood centres have been dominated by private investors in recent years, the purchasers of 4 of the 10 above transactions comprised ASX listed entities Primewest and HomeCo. The Primewest acquisitions were to fulfil a mandate for a ‘Daily Needs’ trust with the backing of Singaporean sovereign wealth fund GIC. The HomeCo acquisitions increase their exposure to Daily Needs centres to in excess of $500m with the potential to create a standalone ASX-listed Daily Needs REIT.
  • 6 of the 10 sales analysed relate to centres constructed by supermarket operators (Coles and Woolworths) and which had been trading for two to four years, allowing the assets to stabilise and the income profile to mature, prior to the supermarket operators divesting them to recycle capital. It is expected that the supermarket operators will continue to divest Neighbourhood centres where the trading performance has stabilised and market conditions allow.

Shopping Centre Market FY20 Wrap Up

Transactional volumes for Regional, SubRegional, CBD and LFR centres reduced significantly in H1 2020. Investor demand for these assets was subdued throughout FY20 with a re-allocation of funds away from retail into better performing property asset classes, a soft leasing market, negative sentiment created by media reports of retailers entering voluntary administration, and a thin buyer pool, especially for assets above $150 million, creating more risk-averse and selective buyer pool.

This situation has been heightened in the post-COVID-19 era. Capital partnering between overseas funds and local managers will continue to provide purchaser opportunities. There are a number of sub-regional and CBD retail assets currently in due diligence pending transacting, reflecting that vendor and purchaser pricing expectations are merging which should result in more transactions in H2 2020.


“There is expected to be limited deal flow for Regional Centres in H2 of 2020. However, we expect to see a number of sub-regional and CBD centres transact in H2 of 2020 as purchaser and vendor price expectations meet. Neighbourhood centres, supermarkets and hardware outlets will continue to be well sought after.”

Shaun O'Sullivan
Director Retail

Regional Shopping Centres

  • During FY20, transactions of 50% interests in Westfield Marion, Westfield Burwood and Garden City Booragoon provided investors opportunities to secure stakes in some of Australia’s better-performing Regional centres with purchaser profile spread between an A-REIT (Scentre Group), a private investor (Perron Group) and an offshore fund (SPH REIT). The average yield of these transactions of 4.92% sits circa 400 basis points above the current 10-year bond rate.
  • Regional centres were greatly impacted by social distancing and business hibernation measures during the COVID-19 lockdown and continue to be impacted by failing discretionary retailers. In positive signs, a strong bounce back in non-discretionary retail spending in June and July indicated consumers are keen to spend once restrictions ease. Transactional volumes are expected to remain subdued in the short term with some purchasers re-weighting away from retail.

Marion Shopping Centre, SA

Sale Price: $670,000,000 (50%)
Sale Date: Sep 2019
Equated Market Yield: 5.19%
IRR: 6.53%


Sub-Regional Shopping Centres

  • A diverse range of Sub-Regional centres transacted over the last 12 months. The broad range of analysed yields of circa 5.25% to 9.25% is reflective of the market’s perception of the different income risk profile between prime and secondary Sub-Regional centres. Most Sub-Regionals to transact were in the $100m to $150m range.
  • Sub-Regional centres were also greatly impacted by social distancing and business hibernation measures during COVID-19 lockdown. More attractive acquisition opportunities exist for where exposure to under-performing Discount Departments Stores is low and repositioning or alternative use options exist. Relatively high yields will continue for secondary centres.

Brimbank Shopping Centre, VIC

Sale Price: $153,000,000
Sale Date: Dec 2019
Equated Market Yield: 7.02%
IRR: 7.73%

CBD Centre

  • CBD assets were a sought after asset class in recent years as Australian capital cities experienced inner-city population booms and surging CBD office markets, creating a large white-collar workforce to support retail spending. The COVID-19 pandemic has impacted CBD pedestrian volumes through Working From Home and the lack of international students and domestic and overseas tourists.
  • There are currently a number of CBD centres being offered to the market or in the process of transacting, including City Cross and Rundle Place in Adelaide and St Collins Lane and David Jones Building in Melbourne.

St Collins Lane, VIC

Currently offered to the market.
m3property is acting for an interested party


Large Format Retail

  • A number of Large Format Retail (LFR) Centres in the major eastern seaboard capital cities transacted during 2019, including Crossroads Homemaker Centre ($140,000,000 at 6.64% equated market yield), Homemaker Prospect ($64,260,000 at 6.95%), Casey Lifestyle Centre ($57,000,000 at 6.75% *m3property acted for the purchaser), Blaxland Home Centre ($47,500,000 at 7.31%), Geelong Gate Homemaker Centre ($44,250,000 at 6.80%), Highpoint Lifestyle Centre ($25,500,000 at 4.55% *m3property acted for the purchaser), Hollywood LFR Centre ($12,950,000 at 7.53% *m3property acted for the purchaser). However, the only centre of significance to transact so far in 2020 was City West Plaza in Melbourne for $39,000,000.
  • Purchasers have been attracted to this asset class by the relatively high yields and the large tracts of metropolitan land on which the centres are located.
  • Subdued rental growth and a limited pool of tenants that are actively expanding their store networks are challenges in current market conditions although landlord rent collections were relativity high during the pandemic.

Casey Lifestyle Centre, VIC

Sale Price: $57,000,000
Sale Date: Oct 2019
Equated Market Yield: 6.75%
IRR: 7.36%
m3property acted for the purchaser



  • Hardware assets, and in particular Bunnings Warehouses were well sought after assets prior to COVID-19 and this has continued during the pandemic with investors attracted by relatively long leases to a desirable tenant, with fixed annual rent increases and the tenant paying outgoings. In addition, the assets usually comprise large tracts of metropolitan land and the Bunnings business has continued to perform well.
  • The assets are tightly held with a large amount of transactional stock generated by Bunnings divesting properties they have developed on a lease-back arrangement. A number of Bunnings Warehouses have now transacted at market yields below 5.00%.

Bunnings, Lawnton, QLD

Sale Price: $18,860,000
Sale Date: Aug 2019
Equated Market Yield: 4.58%
IRR: 5.39%



  • Similar to hardware assets, this asset class was well sought after pre-COVID-19 and continues to be so in the current environment as investors seek quality tenants with long lease terms. Caution remains with regards to rental growth where percentage rent thresholds are well above turnover levels. Turnover has spiked as a result of the pandemic. A number of regionally located assets transacted in late 2019 in the circa 5.00% to 5.50% market yield range. Metropolitan assets have achieved lower yields reflecting the strong underlying land value.

Woolworths, Strathalbyn, SA

Sale Price: $18,805,000
Sale Date: Dec 2019
Equated Market Yield: 5.75%
IRR: 6.94%


The market has shown that modern, Coles and Woolworths anchored centres are sought after assets in the post-COVID-19 environment, reflective of the strong contribution to the income profile by the supermarket anchor tenants and the relatively low number of speciality tenants (in comparison to sub-regional and regional centres), with these tenants having a non-discretionary retail focus, reducing exposure to discretionary spending.

Income growth for these assets, whilst being stable, will be subdued in a low inflation environment where the supermarkets contribute the majority of the income and the supermarket rental growth is dependant on turnover rent being achieved (aside from a potential turnover growth spike as a result of the pandemic). This is leading to lower IRRs.

We expect the market will continue to seek these assets over the short to medium term.