INVESTOR DEMAND PUSHES PRICE OF MELBOURNE FRUIT SHOP TO $9M

One lucky vendor is banking $9 million – significantly more than what they paid Coles in 2012 for a former First Choice Liquor store – after selling what is now a successful fresh food operation in Forest Hill, 18 kilometres east of Melbourne.

The runaway auction, held on site at 281-285 Canterbury Road, saw eight bidders make 104 bids before the final offer, which was more than $2 million above the reserve.

Retail properties are in high demand in Melbourne, and this sale comes as other shops and supermarkets are being snapped up on very tight yields by investors who see them as a good antidote to low interest rates, agents say.

Leased to Strawberry Point Fresh Food Market, the Forest Hill property includes a modern 1200-square-metre, enclosed facility and 48 open-air parking spaces.

With a flexible and valuable Commercial 1 zoning, the asset, with 55 metres of street frontage has, according to the agents “substantial future development upside”. The tenant is paying annual rent of $348,140 to occupy the premises, which the vendor bought for less than $4 million in 2012.

The sale reflected a yield of 3.6 per cent, which is particularly encouraging for property owners when compared to recent freestanding supermarket transactions selling for in excess of 5 per cent.

There was significant interest from Asian investors in the mix of prospective buyers, the agents said.

Whilst the sale price reflected a very tight yield, the rate paid on land was a moderate $2556 a square metre. Nonetheless it was an exceptional result give the potentially very long lease.

In the past, sub-4 per cent yields, such as that recorded for 281-285 Canterbury Road, are typically seen when ‘strip shop’ assets sell in the $1 million to $3 million range.

“However, given the current interest rate climate and the increase in the number of investors, both local and foreign, in the market, it is no surprise that yields are sitting where they are,” Mr Vinci said. “The alternative to buying property at 3.6 per cent is leaving your money in the bank at half that yield, with no tax offsets such as depreciation and also no growth in capital value.”