Dexus Stake snaps up stake in Westfield Chermside as shopping malls seize the limelight

Westfield Chermside was packed with shoppers during the Black Friday sales.

After languishing in the doldrums during the Covid pandemic, large shopping malls have jumped back into favour with big institutions.

The closing months of the year have witnessed a dramatic flurry of large-scale shopping centre sales, more reminiscent of the action a decade ago when they were at the top of the investment tree.

In those days, the billionaire Lowy family was still running the Westfield empire and big landlords resembled developers, with ambitious expansion agendas to roll out more space across the nation. This all came to a halt even before the pandemic struck as the threat of e-commerce sapped confidence across the industry. This set back even the best operators and very few new malls have opened since then.

But landlords adapted and many online retailers have taken space in large centres, boosting their performance.

The biggest shopping centres are now being chased by institutions partly because the lower end of the market has already taken off.

Smaller neighbourhood centres had already been snapped up by nimble fund managers, and sector heavyweight Charter Hall has been actively assembling a $3bn portfolio of mid-size assets.

The latest round of deal-making is seeing big superannuation funds and institutions getting back into top malls after a period during which they were either selling down assets or effectively out of the market. The big change has been the realisation that at a time when the population is surging, partly due to high immigration, it is almost impossible to get a massive new Westfield-style centre out of the ground.

Forces to blame include rising construction costs, land shortages, and blockages in planning systems. But in the main it is too difficult to find and buy large sites given competing land uses ranging from housing to data centres.

This means that deals on existing shopping centres are being struck at a rapid pace as investors look to get set. Already, Fawkner Property is buying Erina Fair on the NSW Central Coast for about $895m and the Australian Retirement Trust is in talks to buy a 19.9 per cent stake in Westfield Sydney for close to $870m.

In the latest play, property group Dexus has snapped an additional 25 per cent stake in Westfield Chermside in Brisbane for $683m, and set up a new trust to hold its stake. The company has launched the Dexus Strategic Investment Trust series, which will focus on high quality assets that it believes would lead to long-term value creation.

Dexus bought the stake from the Scentre Group, which will now own 50 per cent of the centre. The Australian had flagged the transaction in October. This play followed a separate fund – the Dexus Wholesale Shopping Centre Fund – acquiring a 25 per cent interest in Westfield Chermside in July.

The deal on the latest 25 per cent interest in the Chermside centre reflected a market capitalisation rate – a measure of property value – of 5 per cent. Lachlan MacGillivray of Colliers advised Dexus on the equity raising.

Dexus will co-invest about $170m in the new fund, taking a 49 per cent interest, with external backers to take the remainder. Scentre will also invest $50m. Both groups expect to sell down their positions – with Dexus aiming to drop to about $50m – as more institutions come into the deal.

Westfield Chermside is the nation’s second-largest regional shopping centre by both sales and gross lettable area. The Brisbane complex is exposed to one of the country’s fastest-growing metropolitan catchments, underpinning a strong long-term growth outlook.

Dexus chief executive Ross Du Vernet said the group’s funds business gave investors access to high-quality assets across multiple strategies that fit with their investment objectives.

Scentre had earlier raised the prospect of selling down its interests in large centres. It will keep a tight grip on the Westfields that it has sold down as it stays in charge of running the assets.

With so little new supply on the horizon, analysts believe that retail property landlords could be in for a golden age. There is some caution if interest rates are hiked by Reserve Bank governor Michele Bullock next year, which could slow spending.

Scentre securities added 1 per cent to $4.20 on Friday after jumping 4 per cent on Thursday after news of the Westfield Sydney deal broke.