Retail investment properties are gaining traction as one of the hottest sectors with sales of more than $100 million completed in the first two weeks of 2017 and more are on the cards.
The most recent sale was by Sentinel Property's Rutherford Homemaker Trust of its Hunter Supa Centre retail homemaker property in regional NSW for $42.25 million. The buyer was not disclosed, but is understood to be Primewest Retail Shopping Centre Trust.
Sentinel acquired the property in May 2013 for $18.5 million as part of its national counter-cyclical buying spree of large format retail centres.
Sentinel managing director Warren Ebert said the strategic divestment of the Hunter Supa Centre, the latest in a series of retail property sales by Sentinel, has fully capitalised on the rising market demand for well-located and well-leased retail centres.
He said investors in the stand-alone Sentinel Rutherford Homemaker Trust are forecast to receive a total Internal Rate of Return of about 47.05 per cent, when taking into account the capital return from the sale, two previous capital return payments, and the monthly distributions over the life cycle of the trust.
"Large format retail centres were well out of favour when we purchased this property, with many big funds selling out. Sentinel has built its success on being a first mover ahead of the pack and we identified the opportunity to buy this property when it was not wanted by others."
Mr Ebert said the new Sentinel Regional Office Trust had acquired four regional office properties totaling more than $122 million in the past four months.
On the sale side, one of the latest to be offered is Coles Five Dock, Sydney with a price tag of about $20 million.
Coles acquired the business last year from Supabarn Supermarkets Pty Ltd, which is a member of the Koundouris Group of companies, to get a foothold in Five Dock and is being sold via an expressions of interest campaign through James Wilson and Alexander Elliott of Colliers International.
James Wilson, director NSW detail investment services at Colliers International, said the combination of a tightly held asset type, Sydney metropolitan location, distinct lack of any competition and an extremely affluent catchment, mean that Coles Five Dock will be keenly contested by investors seeking a trophy retail investment.
"The beginning of 2017 has brought immediate market activity within the supermarket and neighbourhood shopping centre space not experienced in previous years. Clients are looking to realise the full potential of their property by taking advantage of the record breaking conditions driven by huge equity levels, low cost of debt and limited retail investment opportunities available in 2016," he said.
Mr Wilson said the NSW retail market has not had the quality or quantity of stock of other states, as is evidenced by the recent Victorian transactions on tight yields including Brighton Woolworths for 3.77 per cent and Pakington for 4.7 per cent.
According to Alexander Elliott, executive retail investment services at Colliers International, Five Dock's strategic location between the Parramatta and Sydney CBD, coupled with its close proximity to the highly publicised Parramatta Road Urban Transformation Strategy, "highlights its value to sophisticated retail investors".
Daniel Lees, director of research at Colliers International, expects there is room for retail property yields to compress further, thanks to low interest rates, "but we expect that more transactional activity within the retail sector should reprice the market closer to where historical spreads deem these shopping centres should be".