In the largest Large Format Retail (LFR) transaction to occur since late 2022, HomeCo Daily Needs REIT has divested HomeCo Midland to national property investor and developer PWD for $74.75 million.
Situated in the burgeoning Midland region of Western Australia, 15 km northwest of the Perth CBD, the asset comprises a well-designed LFR centre with 23,400m2 of lettable area and direct at-grade car parking.
JLL’s Nick Willis and Sam Hatcher, jointly with Vend Property’s Jeff Klopper, handled the divestment of HomeCo Midland.
In a year of record low investment supply across capital markets, LFR assets have been one of the most tightly traded asset classes in the retail sector. Volumes for retail transactions in 1H23 are down 50% on 1H22, and with only 30 deals, this year’s first half now represents the lowest on record.
Willis said, “Given the robust performance of the LFR sector and its strong underlying fundamentals being land rich and almost irreplaceable given the rise in construction costs, we are continuing to see demand from well-capitalised parties able to transact. However, amassing portfolios of scale is difficult with investment supply of institutional-grade assets tightly held, as the majority of the market is controlled by a handful of players.”
HomeCo Midland is one of few LFR assets in Western Australia which has good connectivity to the surrounding arterial road network and major infrastructure, such as the St John of God public and private hospitals and the Perth International Airport.
Hatcher said, “Western Australia and the broader national LFR market remains tightly held and controlled by a limited number of key ownership groups including HomeCo’s Daily Needs REIT and Harvey Norman. The sale of HomeCo Midland is a major LFR transaction for Western Australia, a market which only experiences on average two LFR deals per annum, indicating the tightly held nature of this market.”
LFR properties have continued to be sought after in the post-pandemic environment due to an increasingly diversified tenant base and an improving quality of tenants due to industry consolidation within sub-segments and more national chains providing strong lease covenants.
Andrew Quillfeldt, Head of Capital Markets Research at JLL, said, “Large format retail has benefitted from cyclical and structural sector themes. The cyclical surge in retail spending on household goods from a variety of factors, including home renovations, has resulted in sales growing by 24% since the start of 2020. That has been supportive of rental reversions within the sector.”
Banjo Bond, a founding Director of PWD said, “This is an irreplaceable asset located on a large land holding near major road infrastructure, with income underpinned by major national tenants. The investment proposition is highly compelling with retail trade in WA remaining the most robust in the country.”
PWD co-founder Rob Thomas added, “With significant barriers to entry for new product in Perth we look forward to strong trading growth in this centre supported by major population increases forecast in nearby growth centres.”
The transaction of HomeCo Midland follows other notable LFR deals in 2023, including the sale of HomeCo Epping, VIC which was acquired by Forza Capital for $70.25 million and Rothwell Central, QLD acquired by OzProp Holdings for $41.0 million.