Perth in focus in shopping centre buying spree

The city of Perth is said to be the most remote major capital city in the world.

So when the Collie Central Shopping Centre was offered for sale in November 2023, the fact that it was the only shopping centre within a 45km radius for the local population gave it a unique selling point. It ultimately sold in May 2024 to the Queensland-based fund management company Natgen for $10 million.

Collie Central’s remoteness may have provided some novelty factor, but the reality is that investors – private investors in particular – can’t get enough of suburban supermarket-anchored shopping centres.

This real estate type is considered resilient amid the current economic uncertainty thanks to the stable income provided by its supermarket and other convenience-based tenants, such as butchers, bakeries, and chemists.

In Western Australia, investment in neighbourhood shopping centres totalled $225.8m over the 12 months to March 2024, above the 10-year average of $156.7m.

And in April and May, there was an additional $19m in investment across two shopping centres – Collie Central, and Riverton shopping centre – the latter selling off market for $9m at a passing yield of 7.18%.

WA lures buyers with higher relative returns than Australia’s core east coast markets says Sean Flynn, senior director, capital markets – WA, JLL.

“Perth shoppers have the same needs as those in Sydney and Melbourne, the city has arguably more stringent planning controls, and the risks and benefits are comparable. Despite this, WA transacts at a noticeable yield differential, effectively delivering higher returns,” Flynn says.

The mid-point, or median, yield for neighbourhood shopping centres in Perth as of March this year was 7.00% compared to Sydney’s 6.38%, according to JLL research. This reflects a softening of 50 basis points (bps) year-on-year in Perth versus 63 bps in Sydney. Melbourne and Brisbane’s mid-point yield of 5.75% and 6.50% respectively reflects a softening of 12 bps and 37 bps over the same period.

Limited yield movement in Perth “reflects a market that doesn’t have as far to correct”, with values holding even amid interest rate pressures, explains Flynn.

One of the most eye-catching deals has been the sale of Whiteman Edge Shopping Centre in February. It was the largest and tightest-yielding neighbourhood shopping centre transaction in the state in two and a half years. The fully leased centre was bought by a South Australian investor for $39.1m at an annualised yield of 5.99%.

Woodvale Boulevard Shopping Centre, located in an affluent residential area where average household income is $121,446, 6.2% above the Western Australian average, was bought for $36.5m by a local syndicator. Eight formal offers were made for the mall, which shows the depth of appetite for well-located Perth metropolitan retail holdings.

Encompassing high net-worth individuals, small partnerships, family offices and syndicates, private investors have accounted for 75% of neighbourhood shopping centre purchases in WA over the 12 months to March 2024, with an average deal size of $28.2m, according to JLL research.

The relatively low price point of neighbourhood shopping centres, which typically sell between $10m - $40m in WA, has seen this cohort dominate.

More recently, interstate and offshore interest has been noticeable amid the established fraternity of local seasoned private investors.

Perth is a bright spot on investors’ radars given it is the fastest growing capital city by population in Australia, with house prices soaring amid labour growth spurred by the state’s mining, energy and commodities businesses.

The state of 2.93m people is forecast to grow to 3.64m by 2050, becoming the third largest in Australia after Victoria and New South Wales, according to the Australian Bureau of Statistics. NAB bank expects dwelling prices to rise 13.7% this year, well above the 5.5% Australian capital city average.

Those price gains will underpin a “wealth effect” that will boost retail spending, building on a two-decade-long mining boom has boosted incomes and living standards.

These factors are also driving the return of capital to larger shopping centres over June and July, with Centuria buying Halls Head Central for $70m, Melbourne syndicator Fawkner Property purchasing Karratha City for $96m from Vicinity and Challenger, and WA-based Realside Property purchasing Vicinity’s Maddington Central for $107m.

Vicinity is also entering into due diligence to purchase the passive 50% interest in Lakeside Joondalup for a reported $420m, while Melbourne-based JY Group is reportedly looking to make its foray into Perth by acquiring a $200m 50% interest in Westfield Whitford City alongside Scentre Group, according to The Australian

There’s still spirited competition for quality offerings in the Western Australian retail market, Flynn says.

“WA’s offering of stability in neighbourhood retail, population growth and consumer wealth is a compelling proposition amid an economic slowdown and limited opportunities to buy.”