A Penrith shopping centre anchored by Woolworths and Aldi has sold to a private investor for $48.1 million, reflecting a net yield of 5.30 percent, illustrating the continued appeal of assets with minimal exposure to discretionary retail.

The recently completed Cranebrook Village Shopping Centre, at 80 Borrowdale Way, Cranebrook, in Sydney’s west, has a WALE of 14-plus years based on several new long-term leases, including a 20 year lease to Woolworths.

Savills Australia’s Steven Lerche and Andrew Palmer brokered the deal in conjunction with CBRE’s Nick Willis and Justin Dowers on behalf of AusPacific Property Group after receiving 270 enquiries via an international expressions-of-interest campaign.

“The property attracted enquiries from a wide buyer pool, including local, interstate and offshore investors,” Mr Lerche said.

“We hadn’t seen a brand new, high-quality neighbourhood shopping centre formally offered to the market in Sydney for a long time and could only compare it to the likes of Coburg North Village in Melbourne, which sold for $38 million at a record yield of 4.98 percent.

“The sale of Cranebrook Village represents a strong result in the current retail market but matches the result achieved for the sale of Thornleigh Village, another metropolitan Sydney neighbourhood that was sold by Charter Hall in June 2018 for $43.1 million.”

Mr Lerche went on to say that the buyer had been attracted to Cranebrook Village’s “absolute security”, with 70 percent of its income stream underpinned by Woolworths and Aldi and 84 percent by national retailers.

In addition to the Woolworths, BSW and Aldi supermarkets, there are 13 specialty retailers, including Terry White Chemist, First Care Medical Centre and Australia Post. The centre also provides visitors with ample dining areas and a village green to enhance the shopping experience.

The sale of Cranebrook Village is one of only seven NSW neighbourhood shopping centres sold in the calendar year to October, compared to 21 sales in 2017.

“This indicates an acute shortage of this type of investment stock that has come to the market in NSW,” Mr Lerche said.

“The trend is reflected nationally to some extent, with declines in both NSW and QLD partially offset by increases in Victoria and Western Australia.

“Neighbourhood shopping centres are in heavy demand from private investors across Australia, with Coles and Woolworths-anchored assets the preferred investment.”

In Victoria, nine neighbourhood shopping centres have sold in the year to October 2018, with several institutional owners, including Stockland, Vicinity Centres and Abacus, selling smaller assets as part of their portfolio redistribution.

These sales include The Village Bacchus Marsh for $61.65 million, Stockland Highlands Shopping Centre for $43 million, Bellarine Village Shopping Centre for $36.5 million, and Torquay Village for $35 million – all to private investors.

“Private investors have been the purchasers of these assets, at yields ranging between 5.17 percent and 7.06 percent,” Savills Australia’s National Head for Retail Investments, Ben Parkinson, said.

“These are in line with the yields being paid along the eastern seaboard.”

A similar trend is also evident for freestanding supermarkets, as illustrated in the recent sale of Coles Riverton in metropolitan Perth for $31.95 million in January this year, reflecting a net yield of 5.30 percent.

“Yields are sharpening for metropolitan assets in wealthy catchments or assets with redevelopment potential,” Mr Lerche said.

“Coles Earlwood in south-western Sydney was purchased by a private investor for $28.72 million in May on a 4.22 percent yield, with potential for significant future development, including expansion of the supermarket and residential space above.

“Private investors like these assets because of their significant underlying land value and ‘set and forget’ characteristics, and the leases typically require the tenant to maintain the building.”

Mr Lerche identified Coles Clayton as another example of this phenomenon.

“Coles Clayton sold to a local private investor for $17.115 million in March this year on a tight initial yield of 2.57 percent,” he said.

“We are seeing strong competition from privates that are land-banking due to the long-term redevelopment potential inherent under the commercial zoning.”

Learn more about Savills Retail Investments.