Investor demand for large format retail and DIY assets is surging as Covid-19 continues to reshape the investment landscape, prompting a string of significant transactions in recent months.
Blair Peterken, Capital Markets Director at Colliers International, says there has been a renewed focus on single-tenant assets with long leases.
“The global pandemic has restructured our investment landscape for the time being. There is buyer demand in the CBD, but there is also a disconnect between buyers and vendors with regard to pricing. This means investors are looking elsewhere.
“Covid-19 has also prompted investors to take a fresh look at their tenant covenant criteria. Long leases, and the ability to operate at various lockdown levels, are particularly sought after.
“As a result of these factors, we’re seeing huge demand for supermarkets, large format retail and DIY assets with strong tenant covenants.
“This demand has translated to a number of significant deals throughout New Zealand since the first Covid-19 lockdown.
“We have investors literally begging for more large format or long-term secure investments. Demand far outweighs supply as we head into the last quarter of 2020.”
Among the recent deals transacted by the Colliers Capital Markets team was the sale of Mitre 10 New Lynn, which was purchased for $32.5m by Mitchell Mackersy to establish a new syndication scheme.
“Syndicators are strong performers at the moment and are making the most of the current market,” says Peterken.
“Low interest rates have led to low term deposit returns, so mum and dad investors are seeking higher returns. Low interest rates also work in favour of syndicators, allowing them to get out higher returns.”
Other notable deals transacted by the Colliers Capital Markets team in the last 12 months include the sale of Bunnings Queenstown, which sold for $28.6 million. It sold for a yield of 4.46 per cent – a record low for a Bunnings property anywhere in Australasia.
Numerous other large format or DIY transactions – including Countdown Howick, PlaceMakers Westgate, The Warehouse Blenheim and The Warehouse New Plymouth – are proof of where investor demand sits at the present moment.
Peterken says supermarkets like Countdown Howick, and DIY stores like Mitre 10 New Lynn, are seen as ‘pandemic-proof’ investments.
“As essential services, supermarkets are able to operate at any Covid alert level. They also generally offer long leases to a single tenant, which reduces exposure.”
Peterken says other large format retailers are also well placed to operate at various lockdown levels.
“They are usually standalone properties with abundant car parking, which provides for contactless pickup and plenty of space for social distancing.
“Many large format retailers have also benefited from the recent boom in home improvement. With people able to travel less, homeowners are investing more in their properties.”
Peterken says he doesn’t foresee a drop in demand for large format retail assets any time soon, with record low interest rates forecast for early 2021.“At times of uncertainty, investors seek out defensible assets. Large format retail assets generally tick all the boxes, from long lease terms to strong tenant covenants.”