Village Lakeside Shopping Centre, located in Melbourne’s Pakenham suburb, has been successfully sold, marking the first shopping centre transaction of the year in Victoria.
The centre, occupying a prime 11,220 sqm parcel of land, features Coles supermarket as its anchor tenant and is supported by ten additional speciality stores offering essential goods and services. It is understood from internal sources close to the transaction; the centre sold for a robust $25 million yielding a net return of 5.5%. The purchaser was a Mainland Chinese private investor marking their first venture into the Australian real estate market, a highly competitive field of interested buyers.
The sale of Village Lakeside Shopping Centre was facilitated by JLL’s Stuart Taylor, Tom Noonan, and Mingxuan Li, who conducted a vigorous public expression of interest campaign. The campaign generated an exceptionally high level of interest, underscoring the strong demand for neighbourhood shopping centres and the attractiveness of this defensive asset class to investors.
In an interview with The Asian Executive, JLL’s Head of their Asia Market Team, Mr Mingxuan Li, expressed their client satisfaction with the outcome noting the significant number of inspections conducted during the process, with approximately 30 qualified parties overall, indicating exceptional interest from both local and international players. Moreover, Mr Li highlighted the growing presence of new entrants in the market, with the buyer of Village Lakeside Shopping Centre representing the trend of Asian investors actively pursuing shopping centre assets in metropolitan areas like Melbourne and Sydney.
In the interview, Mingxuan shared insights into the factors driving the continued interest in Australian assets from Australian and overseas investors. Li acknowledged the negative impact of rising interest rates since the previous year but pointed out that investors have already factored this into their decisions, particularly for more significant investments. He emphasized that Asian investors view Australian assets as long-term investments and expect interest rates to return to pre-COVID levels eventually. With a long-term investment horizon of 10 to 20 years, interest rate fluctuations are considered by Asian investors as manageable, particularly with the conservative gearing applied to the transaction.
Mr Li highlighted the importance of population growth and a long-term view in driving investor interest in Australian regional retail centres. With their stable income streams and extensive land holdings, shopping centres are particularly attractive to investors as a defensive asset. Homemaker centres, supermarkets, and warehouses have similar characteristics within this asset class.
While Australian REITs and institutional investors have traditionally focused on more significant assets, Li indicated that several of JLL’s corporate clients are actively looking to acquire neighbourhood shopping centres. This diversification in the pool of potential buyers further reinforces the strong demand for regional shopping centres.
The successful sale of Village Lakeside Shopping Centre is a testament to the investment strategies of MPG Funds Management Ltd and reflects the positive sentiment surrounding retail properties in Victoria.
The sale further indicates that Mainland Chinese investors are expected to increase their presence in the Australian property market, directing substantial funds into commercial and residential properties. Despite pandemic-related restrictions, Mainland Chinese buyers rebounded in the residential real estate market in the second half of 2022. Recent data from Australia’s Foreign Investment Review Board (FIRB) shows that Mainland Chinese buyers spent AUD 1.6 billion on residential properties between July and December, surpassing purchases by the usually active Hong Kong buyers. This surge in investment puts Chinese buyers on track to exceed their spending of AUD 2.4 billion from July 2021 to June 2022.
Mr Li says, “The increasing influx of Chinese capital into the Australian property market reflects confidence in the country’s stable market and attractive returns.” He further stated, “As China’s borders progressively re-open and travel restrictions ease more, Chinese investors will no doubt seize more opportunities in Australia. The ongoing trend is expected to shape the property market and influence investment strategies for the remainder of the year and beyond.”
As Australia enters a new financial year, it will be intriguing to observe the evolving landscape of the shopping centre market and how investor demand continues to shape the industry. The sale of Village Lakeside Shopping Centre sets a good tone for future transactions and further reinforces the position of Melbourne as a vibrant hub for retail investment opportunities for both Asian and local investors alike.
The Asian Executive interview with Mr Mingxuan Li, Head of JLL’s Asia Market Team.
TAE: From an Australian perspective, there is talk of the country heading into a recession. People are discussing the possibility of further interest rate increases and overall falling economic activity. However, these concerns counter the fresh impetus or renewed investment in Australian assets. As this was a sale to a Mainland Chinese purchaser, can you comment on your view of the differences in investment thinking between Australians and overseas investors regarding Australian real estate assets?
Mingxuan: Indeed, interest rates have been gradually increasing since last year, and many investors have already factored that into their investment decisions, especially for more significant investments. The achieved yield of 5.5% is comparable to prevailing commercial interest rates. However, I believe that Asian investors view real estate as a long-term investment and have confidence that interest rates will eventually return to pre-COVID levels. From an Asian perspective, an investor should plan to hold an asset for ten or more years; the impact of interest rate fluctuations should always be manageable.
TAE: Are the same groups interested in this shopping centre also considering other asset classes? Are they comparing it to commercial properties, for example? Are these specialized investors focused on this specific asset class?
Mingxuan: Yes, indeed. Most groups interested in shopping centres, especially neighbourhood shopping centres, focus differently than offices or other types of investments. The appeal of shopping centres lies in their extensive land holdings and stable income. Local and offshore investors looking at these properties are generally interested in retail, including homemaker centres, supermarkets, and warehouses. These properties share similar characteristics within the asset class.
TAE: Were Australian REITs among the mix of potential investors you mentioned?
Mingxuan: Several Australian REITs and other institutional investors are looking to acquire neighbourhood shopping centres, even though their mandates may have been for assets worth over a hundred million dollars.
TAE: You mentioned that shopping centres are considered defensive assets. Please elaborate on this term.
Mingxuan: For example, the Lakeside Village Shopping Centre, anchored by a supermarket, is frequented by local residents for daily needs. Other shops in the centre include pharmacies, cafes, and takeaway restaurants. These non-discretionary speciality shops make it a passive and low-maintenance investment. Once a management team is in place, it practically runs itself, making it an attractive yet defensive asset.
Overseas investors have a multifaceted approach when evaluating shopping centre assets. They consider various factors beyond the basics and conduct a comprehensive analysis to assess the investment’s viability and potential returns. Their purchase decisions indicate a level of due diligence, demonstrating their confidence in the Australian market and their long-term investment strategies.
Our many Asian clients believe in Australian assets’ stability and growth potential, particularly in the retail sector. They see shopping centres as defensive assets with stable income streams and long-term growth prospects. Despite the current economic uncertainties and discussions around interest rates, they view this as an opportune time to invest in well-positioned shopping centres.
TAE: Thank you, Mingxuan, for providing valuable insights into the mindset of overseas investors and their interest in Australian shopping centre assets. Clearly, your clients bring a long-term perspective and consider a range of factors beyond immediate economic conditions. Their confidence in the market and their willingness to invest in defensive assets like shopping centres speak to the strength of the Australian real estate sector.
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Other members of JLL’s transaction team
