25 Nov 2015

Brisbane-based funds manager Sentinel Property Group has paid nearly $30 million for the City West Plaza homemaker centre in Melbourne’s west in the wake of strong consumer spending that is tipped to prompt investors to bid up asset prices in the next two years.

Sentinel, which is led by Warren Ebert, acquired the Harvey Norman-anchored plaza in Sunshine North for $29.5 million for its Sentinel Homemaker (Open Ended) Trust. It is the group’s seventh deal in the retail sector in the past year.

The plaza purchase is Sentinel’s second Victorian acquisition – it owns 138 Bourke Street which is leased to the Virgin Active health club – and the third property for the Homemaker Trust after the recent settlement on the Geraldton Homemaker Centre in Western Australia and the Nowra House & Home centre in NSW.

The deal was negotiated by CBRE’s Justin Dowers.

The plaza hosts a Harvey Norman alongside a Beds n Dreams store, Fun City centre and KFC outlet. Harvey Norman’s 10-year lease expires in 2022 (with further options) and accounts for about 41 per cent of the centre’s total gross income.

Urbis research director Ian Shimmin said household goods typically sold in homemaker centres recorded the highest overall growth rate across the retail sector to September this year, growing 9 percent nationally.

NSW and Victoria were standout performers, growing at 11.8 per cent and 12.6 per cent, respectively, in a boom attributed to home construction as people splash out on new furniture, floor coverings, housewares, electronics and hardware.

“Unlike other years, and indeed the long-term trend (20 years), lower prices (i.e. deflation) is not an influence in 2015. Growth is being driven by people buying more and spending more,” Mr Shimmin said.

Improved consumer sentiment is likely to drive up retail property prices over the next two years, resulting in tightening yields, LJ Hooker’s Commercial Retail Market Monitor, released last week, says.

Yields for subregional and neighbourhood properties have firmed by around 50 basis points over the 12 months to mid-2015, the report says.

Average regional centre yields sit at 5.9 per cent, while subregional yields are 7.2 per cent and neighbourhood centres 7.6 per cent.

Investors were taking advantage of the retail sector’s strength.

A private investor sold a fully leased strata suite in the Northland Homemaker Centre this week for $5.12 million on a yield just over 6 per cent in a deal negotiated by CBRE’s Josh Twelftree, Rorey James and Ryan Arrowsmith.

The 1080-square-metre suite was leased to boutique French provincial furniture retailer Maison Est.

Research by Colliers International suggests significant amounts of large-format retail space (313,600 square metres) will be built across the country this year, principally by Bunnings and Masters.

Big box retailer Costco is getting in on the action with three stores in the pipeline. A store in Moorabbin in Victoria is under construction.

Mr Ebert said Sentinel had been looking to expand in Victoria, searching for an asset where it could add “significant value”.

“We have identified substantial value-add opportunities, including improving signage, visibility and access, as well as revamping the layout and presentation via the redevelopment, releasing and reconfiguration of retail tenancies,” Mr Ebert said.

City West Plaza was forecast to deliver investors a minimum 9.5 per cent distribution – paid monthly – in year one, depending on interest rates and potential expenses.

Sentinel manages a national $1 billion portfolio of 36 properties.

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