Coles Mentone sells for $15.3 million to Chinese investor who flew in for the auction

One of two Chinese investors who flew to Melbourne for the auction of a Coles supermarket in bayside Mentone last week walked away with the title.

The centre, 81 Mentone Parade, exchanged for $15.3 million – reflecting a 3.4 per cent passing yield which marketing agency CBRE said is the tightest for a supermarket investment since a Coles-anchored Clayton complex traded last year (on a 2.57 per cent return).

Three China-based investors – which the agency said were introduced through its Asian Services Desk – drove the Mentone bidding beyond $12 million.

The asset includes a 2854 square metre recently refurbished freestanding supermarket returning annual rent of $519,785.

Coles signed a 10-year lease, with a 10 year option, in 2017.

The L-shaped site (marked) includes a recently renovated supermarket and 150-plus bay open air car park.

The 2600 sqm land holding is spectacularly located for a high density residential redevelopment – being on the revered ‘beach-side’ of Como Parade, on a corner (of Brindisi Street), opposite Mentone Reserve and at the southern edge of a retail village surrounding the suburb’s train station.

Justin Dowers said this didn’t go unnoticed with buyers: demand for the asset “bolstered” by the property’s long-term value-add and development prospects.

“More and more we are taking enquiries from prospective buyers with questions on zoning, site access and population growth forecasts,” Mr Dowers said. “The recognition of long-term, value-adding with metropolitan retail opportunities is the new black with what had been a relatively passive retail investor cohort, and it has swelled their ranks”.

Mr Dowers marketed Coles Mentone with colleague Mark Wizel.

Kevin Tong, who heads CBRE’s Asian Services Desk, also worked on the deal.

Mr Wizel said that over 2019 there had been a trend towards “defensive property investments” with neighbourhood centres and standalone supermarkets doing particularly well despite the significant negative factors affecting the retail sector.

“As the year progressed we have taken an increasing number of enquiries from both traditional retail investors and a group of investors newly attracted to this type of asset,” Mr Wizel added.

“That includes regular equity market investors chasing yield and security, and those who are also attracted to the potential development upside.’’

Mr Wizel said this increase in demand “put a brake on any blow out in yields”.

“While yields for standalone supermarkets softened over 2019, they had come off a very strong retail market highlighted by the sale of Coles Clayton in early 2018 on a record 2.57 per cent yield.

Two investors flew in from China to attend the auction last week. One walked away with the title.

“This year we have seen yields hover around 5.5 per cent following an average closer to 4.5 per cent over 2018 but this result unambiguously indicates demand for this product remains very strong,’’ Mr Wizel added.

Coles Clayton, which sold for $17.115 million, traded on a 2.57 per cent yield, which is considered a record low for this asset class.

Woolworths’ Middle Brighton outlet sold for $32 million, a 3.8 per cent return, in 2016.

Last May, a Woolworths leased supermarket in Glenroy traded for $11.75 million, a 3.57 per cent yield.

Other standalone, investment-grade, supermarket deals struck since 2018 are detailed in this CBRE table.

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Marc Pallisco

A freelance property analyst and journalist, Marc is a co-founder of realestatesource.com.au.

Marc Pallisco
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