Pandemic-proof Woolworths and Coles supermarkets up for grabs

Two highly-prized suburban supermarkets – a Woolworths and a Coles – have hit the market amid a growing investor appetite for pandemic-proof essential retailers.

With standalone supermarkets in metropolitan areas rarely coming up for sale, Woolworths Eltham and Coles Lalor – both in Melbourne – are expected to generate strong interest from Australian and even international investors.

Woolworths Eltham is expected to fetch about $30 million as a growing pool of investors look for defensive, income-producing investments that have proven to be pandemic proof, according to Fitzroys and Stonebridge Property Group.

The sale of Woolworths Eltham has been described as the first major test for the retail property market in ‘COVID normal’ time. Picture: realcommercial.com.au/for-sale

Fitzroys director David Bourke said Woolworths Eltham is the first major retail offering for 2022, noting it came after the end of lockdowns that delayed the sale of some large retail assets last year.

“This promises to be the first test for Australia’s retail property market in the ‘COVID normal’ environment,” Mr Bourke said.

“The asset has been offered at an ideal time, with defensive and daily needs-oriented retail assets at the top of investors’ shopping lists, and a huge amount of pent-up capital waiting to be deployed after low levels of quality stock came to the market over the past two years.

“Freestanding supermarkets in established metropolitan locations are an ultra-rare proposition that offer some of the most prized fundamentals of any commercial property investment in the current climate.”

Fitzroys and Stonebridge noted that Woolworths Eltham and Coles Lalor provided a blue-chip tenancy covenant in a low interest rate environment, with a COVID-proof income stream and prime locations.

Retail investors are increasingly targeting assets tenanted by essential and non-discretionary retailers, given the strong performance of the likes of Coles, Woolworths and Bunnings during the pandemic.

Stonebridge partner Justin Dowers said freestanding supermarkets were seen as one of the most secure investment opportunities in the current environment.

“Investors consider freestanding supermarkets among the most prized assets in the market, evidenced by the sharp yields seen in recent months for assets in Melbourne’s established suburbs of Balwyn, Hawthorn, Malvern and Blackburn South.

“Australia has retained its safe-haven investment status throughout COVID, and we expect interest from local, national and international buyers.”

Mr Bourke said activity late last year showed there was a very strong appetite from buyers looking for well-located commercial properties, including retail and industrial assets, leading to a fair bit of compression on yields.

The freestanding Woolworths Balwyn supermarket, for example, sold to a private investor for $45.7 million in November on a 2.99% yield.

Freestanding supermarkets are highly prized by investors. Picture: realcommercial.com.au/for-sale

Both Woolworths Eltham and Coles Lalor are on ‘commercial 1’ zoned landholdings.

Coles has operated at the 3365sqm Lalor site, which has direct frontage to the main retail strip, for more than three decades and recently signed a new 10-year net lease, returning about $415,000 per annum.

“Coles Lalor is engrained within the community in the area being the main supermarket for over 30 years,” Mr Dowers said.

“Whilst the supermarket provides a highly-secure income stream, the opportunity at Coles Lalor is underpinned by a prime commercial 1 zoned landholding which provides the incoming purchaser with long-term upside.”

The freestanding Coles supermarket in Melbourne’s Lalor is up for sale. Picture: Supplied by Stonebridge

The recently-refurbished Woolworths Eltham sits on a large, 9044sqm site in the centre of the suburb.

The 4249sqm full-line supermarket was built 20 years ago. It has a new five-year lease with Woolworths plus options through to 2050 and has an estimated net operating income of $1.16 million per annum.

Fitzroys associate director Chris James said the supermarket had performed strongly and consistently traded in excess of the turnover rent threshold, reinforcing its status as a COVID-proof investment.

“You can’t get more pandemic/recession proof than from an entity such as Woolworths,” he said.

Stonebridge recently handled the first supermarket sale for 2022 – an Aldi in Melbourne’s Mordialloc. The 1500sqm store,  the first Victorian supermarket to be sold by Aldi itself, is located on the ground floor of an apartment complex.

Local, interstate and overseas buyers competed for the asset, with Mr Dowers saying they were attracted to its long-term lease, tenant profile and non-discretionary income.