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January 4, 2019

Sydney’s popular waterfront dining strip King Street Wharf has sold, a sign of healthy investor appetite for retail assets with strong food and beverage offerings.

Real estate group Markham bought for A$125.5 million the 99-year leasehold of the site, which includes tenants Cargo Bar, the Malaya restaurant, Bungalow 8 and The Loft, all with frontage across Darling Harbour.

The deal with LaSalle Investment Management was struck on a yield of 6.02 percent.

The consumer trend towards food and beverage gives investors in this space exposure to a high-growth segment of the retail sector, says Simon Rooney, Head of Retail Investments – Australasia, JLL.

“Cafes, restaurants and takeaway food continue to deliver the highest rate of annual spending growth of any retail category over the long term,” he says.

Millennials are mostly driving this trend. Adults under 34 years old are spending at least A$100 per week on restaurants and takeaway – a 37 percent increase on the previous six years, according to the Australian Bureau of Statistics’ most recent Household Expenditure Survey.

Increasingly, retail landlords have been skewing their tenant mix towards food and beverage, or redeveloping their assets to enhance the experience of dining, with the aim of increasing customer dwell times.

In its 2018 full-year results, Vicinity Centres, which is one of Australia’s largest landlords, said food catering as a proportion of its retail mix had increased 59 percent in five years.

It recently unveiled a A$90 million upgrade of the Roselands Mall in Sydney’s south west which aims to turn it into a “culinary destination”.

Suzee Brain, director of retail food consultancy Brain & Poulter, last year referred to the importance of ‘experience eating’ when it comes to F&B retail, saying successful outlets would be those with “10 reasons for people to come to eat that don’t involve eating”.

“The landlords that understand this are those that will flourish,” she added.

The King Street Wharf sale, brokered by Stonebridge and JLL, included 5,651 square metres of retail accommodation with a weighted average lease expiry in excess of 10 years and built-in rental growth.

The growth of food and beverage retail is turbocharged in city centre locations where consumer and investor activity is high, says Rooney.

“Investors continue to target retail assets within CBD locations that will benefit from growing tourism spending, employment growth and rising inner-city high-density residential space.

“The Sydney CBD is undergoing major changes in terms of new commercial and residential construction, upgraded transport infrastructure and new hotels and tourism-related development, all of which will drive retail and food and beverage spending over the long term.”

Total retail transactions in Sydney over the past 12 months are now close to A$1 billion including the sale of half shares in the Queen Victoria Building, The Galeries and The Strand Arcade to Vicinity Centres in November; a 75 percent share in 383 George Street sold to PGIM Real Estate and the Soul Pattinson Building at 160 Pitt Street, sold to Kingvest.

Click to read how online groceries are making cold storage a cool buy for investors.

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Simon Rooney

Head of Retail Investment, Australasia, JLL

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