A newly-renovated Coles supermarket tipped to attract strong interest

A newly-renovated Coles supermarket is expected to appeal to investors, including those interested in the store and wider site’s future potential.

Coles completed a major store refurbishment at Melbourne’s Coles Vermont South in August, which included expanding its click and collect facilities for customers picking up online orders.

The full-line Coles supermarket has been part of the Vermont South Shopping Centre, in Melbourne’s eastern suburbs, for more than 40 years.

Stonebridge Property Group’s Justin Dowers and Kevin Tong said the supermarket is a top performer that has further upside potential after the renovations.

“Coles Vermont South performs exceptionally well due to its commanding location and convenience,” said Mr Dowers, a Stonebridge national partner.

“This has recently been further enhanced by a major store refurbishment undertaken by Coles.”

The newly-refurbished Coles supermarket has been part of the Vermont South Shopping Centre for more than 40 years. Picture: realcommercial.com.au/for-sale

There is a long lease to Coles that runs until 2029 plus a 10-year option, with the lease terms including a ‘percentage rent’ threshold where the tenant pays a percentage of its turnover to the landlord.

The agents said the 4216sqm Coles has consistently traded in excess of the percentage rent threshold, providing excellent income growth prospects.

“Based on the store’s outstanding performance, the supermarket is substantially under rented which can create a value event in the future,” Mr Dowers said.

“With the supermarket already trading in percentage rent, we anticipate there will be substantial trading performance growth and subsequent rental growth following the recent store refurbishment.”

According to the listing, the supermarket has an estimated net operating income of $871,000 per year.

Investors have been targeting assets tenanted by essential and non-discretionary retailers which have proven to be ‘pandemic proof’. Assets with ASX-listed tenants and long lease terms are also highly sought-after as buyers look for defensive assets in the current economic climate.

Coles Vermont South shares 756 ground level car spaces at the shopping centre, which sits on a 3.8ha commercial 1 zoned landholding with frontage to the busy Burwood Highway.

Mr Dowers and Mr Tong said the strong location fundamentals create an opportunity for an astute buyer to acquire the remaining lots in the future and potentially redevelop the site into a significant mixed-use development, subject to council approval.

“Buyers will be attracted to the strong performance of the Coles supermarket, as on most occasions on site the car park is quite full,” Mr Tong said.

“However, over the long term there may be an opportunity to consolidate the site and ultimately control 3.8ha with significant development potential.”

Investors have been targeting assets tenanted by essential retailers, which have proven to be ‘pandemic proof’. Picture: realcommercial.com.au/for-sale

Mr Tong, Stonebridge’s Asia practice partner, expects the Coles will attract strong interest from Asian investors.

“Coles Vermont South is in the heart of Melbourne’s inner south-east, which is heavily influenced by residents of Asian heritage,” Mr Tong said.

“Based on our experience in transacting similar assets including Woolworths Burwood East and Burwood One Shopping Centre, we anticipate strong bidding from the Asian investor profile.”