Queen Victoria Building (Wikimedia Commons: Dietmar Rabich )

Queen Victoria Building (Wikimedia Commons: Dietmar Rabich )

GIC Finds Select Opportunities in Retail

Convenience Property is Key Focus

Much of retail property has struggled in recent years, as consumers moved online and the coronavirus pandemic caused long periods of enforced lockdowns for many outlets. But not all segments have performed poorly: convenience or non-discretionary retail has gone from strength to strength and Singapore-based sovereign fund GIC has been investing in these assets, Florence Chong writes.

Back in 2020, when shopping centres had lost their lustre, Singapore’s GIC bucked the trend by investing close to $1 billion in Australian retail assets.

Not the regional or super-regional shopping malls, rather, GIC went for ‘small bites’ – neighbourhood centres, an asset class long considered too small for super funds and other such large institutional investors.

In hindsight, it was a prescient decision.

During lockdowns in 2020 and 2021 to combat the spread of COVID, regional malls were locked down too. But the neighbourhood shopping centres, anchored by supermarkets and essential services such as bakeries, pharmacies and greengrocers, stayed open.

GIC made its first investment in neighbourhood centres in June 2020, mandating the Perth-based Primewest to invest in this asset class.

Primewest used that $300 million mandate to launch Primewest Daily Needs Fund, an entity since renamed Centuria Daily Needs Fund.

It is managed by Centuria, which took over Primewest in 2021. Among its assets, the fund now owns West Village shopping centre on the CBD edge of Brisbane, which it acquired in 2022 from Seikisui House for $202 million.

Just months later, GIC formed an 80/20 partnership with a listed convenience retail shopping centre owner, SCA Property Group, now known as Region Group. The relationship was initiated by Region, which was aware of GIC’s mandate to Primewest to build out a portfolio.

The $750-million Metro Fund has so far acquired eight convenience shopping centres, says Evan Walsh, Chief Financial Officer at Region Group, a specialist investor in this segment of the retail market.

He told [i3] Insights: “We own approximately 8 per cent of around 1,200 centres in Australia, and we are the largest owner in Australia of Coles- and Woolworths-anchored neighbourhood and subregional centres.”

Walsh says assets must meet its criteria before they are acquired – they must be neighbourhood and sub-regional centres with supermarket anchors and have limited competition and limited threats from new competition.

Aside from the usual commercial considerations, such as returns and yield targets, he says: “We like the fact that the majority of our tenants sell goods of a non-discretionary nature (i.e food-based, pharmacy/healthcare services).

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Convenience-based shopping centres remained resilient during the pandemic. Supermarkets and services were deemed essential and remained open, Woolworths and Coles recording significant increases in sales over this time – Evan Walsh, Chief Financial Officer, Region Group

“Convenience-based shopping centres remained resilient during the pandemic. Supermarkets and services were deemed essential and remained open, Woolworths and Coles recording significant increases in sales over this time.

“The majority of our centres are based in regional centres and, as such, saw an increase in sales performance because of a significant migration of people living in the major cities to regional areas during the pandemic.”

Walsh says the values of these assets have remained relatively resilient due to their defensive nature, with valuations supported by significant demand from high-net-worth investors for assets with values of under $20 million.

“However,” he says, “with the cost of capital increasing due to the RBA cash rate target increasing from 0.1 to 4.1 per cent over 15 months, we have seen an impact on our market capitalisation rate. This increased by 0.42 per cent, equating to a decline in value of around 4 per cent during the 22/23 financial year.

“Our long-term aim is to drive comparable net operating income growth (NOI) of 1-3 per cent per annum. We did exceed this last financial year, where we saw a comparable NOI growth rate of 4.3 per cent, and in our earnings guidance for this financial year we guided a 3 per cent increase in comparable NOI.”

GIC has long experience in investing in Australian retail. Its most notable commitments were to three of Australia’s most iconic CBD shopping malls in Sydney – Queen Victoria Building, The Strand Arcade and The Galeries – assets which it had held for more than two decades.

But this decade, GIC started to rearrange the deck chairs, so to speak, of its Australian retail exposure. While stepping up exposure to daily needs retail centres, it has sold down its interest in major shopping centres. Its stakes in the three Sydney CBD centres were sold to Hong Kong’s Link REIT for $538.2 million.

GIC has also recently sold back a 49 per cent stake in Chatswood Chase to Vicinity Centres, manager, and part owner of the centre in Sydney’s north, at a sharp discount – reflecting the weakness in the regional shopping centre market.

It was the positive experience of those, like GIC, which chose to focus on the neglected convenience/ daily needs centres sector that perhaps encouraged a large super fund to become a cornerstone investor with a $350 million commitment to a relatively new wholesale fund, managed by HMC Capital.

The entity, known as the HMC Capital Last Mile Logistics Fund (LML), is structured to invest in traditional retail properties which can be repositioned to provide last-mile omni-channel solutions for retailers.

The vehicle also has a $50-million co-investment from the listed HMC Daily Needs REIT, and now, with gearing, has some $800 million in purchasing power.

LML has been seeded with Menai Marketplace, a neighbourhood shopping centre in Sydney’s west, which it purchased for $150 million last December.

Sid Sharma, Group Chief Operating Officer of HMC Capital and HomeCo Daily Needs REIT CEO, told [i3] Insights that institutional demand for metropolitan-located convenient daily needs retail assets has increased over the past decade.

These assets typically have a strong focus on ‘needs tenants’, such as supermarkets and pharmacies. As Sharma sees it, the flight towards convenience retail – which acts as a key last mile solution for retailers – will continue to increase, not just in Australia but globally.

He says LML aims to acquire and actively remix traditional retail assets into convenient daily needs assets, which now form a key part of the company’s retailers’ omnichannel solutions.

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Consumers have been trending towards convenience retail for over a decade. The pandemic has accelerated this megatrend shift by both consumers and investors – Sid Sharma, Group Chief Operating Officer of HMC Capital

“Consumers have been trending towards convenience retail for over a decade. The pandemic has accelerated this megatrend shift by both consumers and investors,” he says. “Given the fundamentals of high-quality, well-located daily needs assets, these will continue to re-rate and be valued highly compared to other sub-sectors in real estate.”

Unlike the office sector, which is struggling to recover from COVID, convenient retail or non-discretionary retail has gone from strength to strength.

According to Sharma, metropolitan-located convenience retail assets in the best suburbs of Sydney, Melbourne and Brisbane remain relatively resilient on a valuation basis compared to other sectors of the commercial real estate landscape.

Aside from good locations, he says HMC centres have had “over 99 per cent occupancy, over 99 per cent cash collections and positive rental spreads of greater than 6 per cent over the last year”.

“As population growth increases, well-located convenient assets will remain in high demand,” he says. “This is also driving our $600 million development pipeline.”

As to how the rising cost-of-living will impact on these centres, Sharma says daily needs retailing is focused on essential goods and services at the value end of consumer spending.

Historically, these assets have been more resilient in periods where consumers focus on needs, not wants.


[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.