Small Malls Continue to Draw Big Interest

Supermarket giant Woolworths is preparing to sell two of its newest neighbourhood shopping centre developments in south-east Queensland as last year’s record appetite for small malls continues into 2022.

Investor demand for neighbourhood shopping centres anchored by essential services retailers, such as supermarkets, caused the retail sub-sectors capital values to surge by 20 per cent in 2021, with smaller centres proving to be resilient earners during times of disruption.

Deals in the small malls sector hit a record of $2.7 billion through 2021. 

Neighbourhood centre investment activity in 2022 continues to be strong, with 22 assets trading within the first half of the year, totalling $900 million.

Tapping into the demand, Woolworths has now listed its Dakabin centre 27km north of the Brisbane CBD and Bannockburn centre 36km south of the Brisbane CBD, both in residential growth corridors and anchored by long-term leases. 

The supermarket chain has enlisted CBRE’s Michael Hedger, Joe Tynan and James Douglas, together with JLL’s Jacob Swan, Sam Hatcher and Ned McKendry to handle the campaign with the assets available individually or in one line.

“With discretionary spending likely to be affected in the short-term as consumers’ budgets are squeezed from inflationary pressures, demand for defensive, non-discretionary assets will continue to draw the most aggressive capital throughout 2022,” Swan said. 

Investor demand for such assets has continued to outweigh supply in 2022, an imbalance that will squeeze yields—an indicator of rising prices.

▲ The newly developed Bannockburn Village includes a full-line modern Woolworths supermarket with direct-to-boot and pick-up facilities.

High-net-worth investors continue to be the dominant purchaser group in the neighbourhood shopping centre bracket, targeting long-term income streams available in the non-discretionary retail sector.

Transactions so far this year have been more tactical with investors consolidating exposure to fewer assets offering the best potential for returns through organic growth and value-add mixed-use development schemes.

Rising interest rates—the major current topic of discussion among investors—is expected by a number of industry experts to hinder deal flow throughout the remainder of the year.

Michael Hedger, of CBRE, said the assets put up by Woolworths were expected to generate domestic and offshore interest from institutional investors, unlisted property funds and private buyers, given Brisbane’s property boom over the past two years.

“We are continuing to see strong investor demand in the neighbourhood shopping centre sector, particularly for new assets which are strategically located,” Hedger said.

“Assets like Bannockburn and Dakabin offer strong investment fundamentals.” 

The 5600sq m Woolworths Dakabin, opened in late 2020, is in an area that has experienced average year-on-year population growth of 6.7 per cent in the primary trade area over the past decade.

Future growth is forecast at 3.25 per cent a year until 2031, which will be a key driver of buyer interest in the centre, as will the 10-year, 3460sq m anchor lease to Woolworths and BWS.

The centre has a strong focus on medical and allied health tenants, accounting for 15 per cent of the income.

Meanwhile, Woolworths Bannockburn, which opened late last year, is on a 1.44ha corner site directly fronting Beaudesert Beenleigh Road.

Woolworths invested $25 million into the centre, which has achieved a 4-Star Green Star development rated by the Green Building Council of Australia.

The supermarket generates 70 per cent of the centre’s income, supported by eight specialty tenants including medical, food and beverage operators. The centre also features a mural by indigenous artist Casey Coolwell-Fisher.

Similar to Dakabin, it is situated in an area that has experienced strong population growth, with the catchment population expected to increase by a further 50 per cent between now and 2031.