Creating a financial crisis across the world, the pandemic has not been kind to the commercial sector in particular. It has wreaked havoc in the small and medium-sized business sector, which has been struggling since its arrival. With lockdown in the most populated and thriving cities of Australia curtailing the demand for most goods and services, companies had to bear a severe setback.
However, one segment that remained unscathed throughout the restrictions is the grocery and essentials retail domain. In fact, it soared during the lockdown because many Australians resorted to hoarding to keep themselves safe from the novel coronavirus. Naturally, the supermarkets have grabbed the attention of the investors who are now trying hard to get a share of the pie.
Thus, if you too are planning to invest in a profitable commercial real estate in Australia, then you must look into the standalone supermarkets which are making all the noise. The demand from investors has been escalating for this pandemic-resilient sector that will never go out of business. Let us understand the sudden interest in supermarkets that has created a shift in the industry.
High-Growth Industry During the Pandemic
The onslaught of the COVID-19 pandemic and the restrictions put down by the state and territory governments made a lot of investors sceptical. Most of them want to put their money into a high returning commercial property, which is also recession-proof. With consumer stockpiling and the need to go out for essentials during the lockdown becoming a reality, the supermarkets have been showing an upward trend.
From Woolworths, Coles and IGA to Aldi, all the big players in the essentials and grocery supply sector have been ruling the roost. Coles reported a rise in profit by 7.1% in June 2020 due to the panic buying. The revenue generated by the supermarkets and grocery stores in Australia is expected to reach $113.8 billion in 2020-21. Most of these brands are also offering online services like click-and-collect, which will help them to manage the costs associated with regular cleaning and sanitisation to maintain the safety standards on the premises.
Standalone Supermarkets Offer Higher Yield
The turnover of supermarkets has always been positive and their presence on your property means exceptional investment credentials. The reason for the success of standalone supermarkets is that the tenants stay for a long duration, which means a regular solid income for the landlords. They sell high-quality and mass consumption products which are in high demand even during a downturn.
Thus, these stable and trustworthy businesses are on the wish-list of every property owner in Australia. The most significant benefit of acquiring a pre-leased commercial property is that it will offer continued return from the property. Standalone supermarkets mean that there are no other competitors on the site which further improves the profits for the business and allow a better rental yield. However, they are few as compared to the ones clustered in shopping centres in the metropolitan areas. The shortage in supply has been amplifying the demand.
Big Bucks Coming from Regional Centres
While the capital cities are dotted with supermarkets operating in shopping centres along with competitors, the regional areas are offering the space for standalone supermarkets. These allow the suburban buyers to shop comfortably and choose fresh produce and goods of their choice by hand. It has been found that people prefer to purchase groceries themselves instead of relying on the online medium. The experience of filling the shopping cart with handpicked groceries in a big space allows maintaining social distance and instant satisfaction to customers.
Thus, these independent stores are offering a gratifying real estate opportunity to investors who are looking for tenants that own brands selling essential items. Some of the biggest sales in the sector have been completed in the regional parts of NSW and Victoria, which were the worst-hit states by the pandemic. One of the standalone Woolworth’s store was sold for $19.5 million in the Orange, NSW. Several other individual supermarkets are ready for sale and will be commanding a similar price.
Significant Factors That Are PushingDemand
Besides the value of the underlying land, these non-discretionary retail properties are surging ahead because of the lowest interest rates and the promise of quality and maintenance from the tenants. Leasing the property to one of the top performers means that the landlord can enjoy a steady income for long-term without any hassles or concerns. The requirement for essential services among the masses makes them worth the investment.
The eagerness of the buyers can be anticipated from the fact that the Woolworths Wadalba supermarket was bought for $26.15 million recently. The asset is expected to bring the buyer a net income of $1,490,000per annum and is the only supermarket in the trading area. In another million-dollar transaction, the Woolworths Lithgow supermarket was sold for $14.65 million recently. The yield from these stores ranges from 2.57% to 6.25% and the buyers are prepared to accept lower returns as well.
Groups Are Expanding Their Portfolios
Another phenomenon that has come into play in the commercial real estate sector in 2020 is that several groups are now investing in properties. The trend will be continuing in the New Year as groups of investors are becoming prominent players. Although the supermarkets were earlier being bought by high-net-worth individuals, now they are being snapped up by funds and syndicators. The competition to grab the best property is getting fierce in the country as the supply of supermarkets is limited and the demand is soaring.
The stores located in shopping centres are also generating interest among the buyers, but the better yield is coming from the freestanding assets in the regional areas. Some other independent store transactions which are worth mentioning include the IGA supermarket in Malvern, Victoria and Coles in West Ryde, NSW. The real estate agents also confirmed that the clearance rates for commercial properties were quite high in 2020 due to the defensive investment route being followed by the investors. The enticing trading conditions have boosted the confidence of both the buyers and the vendors and the trend will continue in the coming months.
Supermarkets are the busiest in every shopping precinct since busy professionals stock up household supplies for the month. However, the pandemic led to unprecedented growth in the sale of essential goods. Consequently, investors have found the new goldmine in commercial property for sale in Australia. Thus, standalone supermarkets are the centre of attraction this season and will hold this position for some time.