A Bunnings for sale as investors chase ‘retail jewel in the crown’

A Bunnings has hit the market at a time when the warehouses have become so highly prized by investors that they’ve been labelled the ‘jewel in the crown’ of the retail property sector.

The first Victorian Bunnings to be offered through a public sale in three years, Bunnings Swan Hill is attracting strong interest as buyers scramble to secure one of the highly sought-after investments.

Savills director of retail investments Rick Silberman said there has been a significant increase in appetite for Bunnings investments over the past two years of the pandemic from a range of different buyers.

Mr Silberman said the long-time investor favourite has slowly become arguably the most sought-after tenant across all retail categories, based on freestanding or standalone investment-grade assets.

“It used to be probably the Coles and the Woolworths supermarkets were the jewel in the crown and if this isn’t on level pegging now, it’s certainly surpassed it,” he said.

Bunnings Swan Hill is the first Victorian Bunnings to be brought to the market in three years. Picture: realcommercial.com.au/for-sale

Mr Silberman said the Bunnings net leases are one of the biggest drawcards for investors, noting the long net leases offered 2.5% fixed annual rental increases.

“Owners can actually forecast their rental growth because they know that their rent’s growing at a certain level each year, whereas that doesn’t apply for supermarkets.”

Like Bunnings, standalone supermarkets leased to the likes of Coles and Woolworths have been in high demand as buyers target pandemic-proof non-discretionary retailers, blue-chip covenants and defensive, income-producing investments.

Mr Silberman said Bunnings has been seen as a daily-needs, non-discretionary retailer, with pricing for the assets getting even stronger during COVID.

The appetite for Bunnings investments has increased during the pandemic. Picture: realcommercial.com.au/for-sale

He said investors are seeking security and long-term growth prospects from their retail investments, noting Bunnings leases are seen to be ‘landlord friendly’ and are underpinned by the Wesfarmers covenant.

Mr Silberman noted yields on Bunnings sales have continued to compress over the past year, with the last two sales recording the sharpest yields on record.

New Zealand investor Cook Property paid $58.5 million on a record 4% yield for a Bunnings under construction in Queensland’s Hervey Bay, with Savills and Stonebridge handling the November sale on behalf of Bunnings.

The 4% national benchmark yield for a Bunnings was matched in February when property investment group Charter Hall paid $65.3 million for the hardware retailer’s biggest warehouse on the NSW South Coast. The off-market sale of Bunnings Nowra, negotiated by JLL, took the number of Bunnings across the Charter Hall group to 66, worth almost $3.7 billion.

Private buyers, funds, syndicates and institutional investors have been increasingly targeting Bunnings assets, there is a limited supply of the investments and they are rarely offered for sale publicly.

“There is a severe imbalance between the level of demand for Bunnings assets and their availability, which is further demonstrated by the fact that this is the first Bunnings to be brought to market in Victoria in three years,” Mr Silberman said.

Savills handled the sale of a Bunnings in the Victorian seaside town of Torquay last year, but Mr Silberman noted that was an off-market deal.

Only a handful of the dozen freestanding Bunnings that changed hands in 2021 were offered through a public sale.

Range of buyers target Bunnings Swan Hill

Mr Silberman said the freestanding Bunnings Swan Hill is attracting interest from local private investors, funds and institutional groups.

Savills has not disclosed a price guide for the Bunnings, which has a total building area of 6666sqm and sits on a 16,638sqm site in the centre of the regional city in Victoria’s northwest.

The property is being sold with a 14-year net lease and further options, with Bunnings responsible for all outgoings.

“It’s very much a ‘set and forget’ type asset where they can just collect their rent,” Mr Silberman said.

The Bunnings was built in 2015 and sold by Bunnings on a 12-year sale and leaseback.

The Bunnings warehouse in Swan Hill has been upgraded and expanded in the last few years. Picture: realcommercial.com.au/for-sale

Bunnings extended the lease after the new owners carried out significant upgrade works and a store expansion in 2019, Savills said.

Mr Silberman said the Swan Hill region has experienced significant growth over the past decade, strengthening the investment case for the Bunnings.

“Swan Hill is very much a thriving regional centre servicing a lot of surrounding townships,” he said.

Mr Silberman noted the site has commercial 1 zoning, allowing for a lot of long-term flexibility.