Vacancies turned into opportunities for our shopping centre investor

A private investor wanted to sell a shopping centre located in the regional NSW town of Parkes, a six-hour drive inland from Sydney. One motivation was the departure of discount department store Target which had left the 6,700 square metre property with a 60% (4,019 sqm) vacancy. The owner also wanted to explore new investment avenues.

The challenge at hand was to market the potential of a heavily vacated regional neighbourhood shopping centre and identify appropriate buyers. Our client was eager to move quickly. We explored how to position the shopping centre as a ‘value add’ opportunity with a lower risk profile than what might have been perceived. At this point, investors had been active in the retail space, but there were limited opportunities to buy. Parkes being a regional location – something investors had been showing increasing interest in post-pandemic – meant the potential for higher yields (7.00%).

Parkes’ strong population and wealth growth also made this an attractive investment.

Further working in our favour was that rising construction costs had put a handbrake on future retail development and so investors were starting to see the inherent value in acquiring assets at steep discounts to their replacement costs. For this reason, highlighting the replacement value of the property to potential investors was integral to our sales approach.

Another crucial consideration was how a buyer could use the vacated space to maximise return on investment.

After some examination, we were able to demonstrate that replacing the single vacancy with a mix of tenants would increase net income substantially.

Our research revealed Parkes to be a strategically located town. It is a beneficiary of a $4.2 billion state government investment commitment into regional communities. Part of this investment includes the Australian Government’s specialty railway line, Inland Rail.

The Inland Rail project aims to be the backbone of the Australian freight network, linking Melbourne and Brisbane via regional Victoria, New South Wales and Queensland. This project will significantly increase traffic through, and within, Parkes, positioning it as an integral link between Brisbane and Melbourne. While Inland Rail is being built in sections, Parkes’ stretch of rail track is complete and in use.

Back to the property, key to JLL outperforming for our client on this campaign was identifying tenant demand to backfill the empty space now that we had determined multiple tenancies were the best way forward. We linked the eventual buyer to two national chain retailers, and this significantly reduced the risk profile of the asset while enhancing the overall value to both the seller and incoming buyer.

It was important not to overlook that despite the shopping centre’s significant vacancy, it was still anchored by a Coles supermarket and affiliated alcohol retailer Liquorland.

The repositioning potential and irreplaceability of Parkes Abour were key factors that eventually drew over 200 expressions of interest in the property, from which 10 viable offers were received.

The shopping centre was sold to a first-time retail investor for $8.9m. The new owner, which had experience investing in pubs, was happy to work towards a quick settlement, and an even quicker exchange of contracts, leaving both parties delighted at the outcome.