Commercial case study: Pittsworth IGA

We sat down with Lachlan O'Keeffe and Michael Feltoe from Ray White Commercial Queensland to hear about their recent successful sale of a freestanding IGA in Pittsworth.

How did you become appointed

We have the contact details of nearly every owner of a single freestanding IGA and IGA anchored shopping centre in Queensland and just called through the list of them all in early 2020. The owner indicated they would sell this property in the month or two but then covid hit and delayed the sale. After a year of chasing the asset, we got the go ahead that they would sell. In the meantime the seller had renegotiated the lease from being a 5 year with 2.5 years remaining on it to a new 10 year lease. Post covid, supermarkets have proven to be very popular and being a single tenanted investment we felt that we had a good chance of finding someone who would both look past the regional location and be prepared to pay a tight yield considering it isn't a national tenant (head office) lease.

What was the approx marketing budget?

$11,000

What marketing methods did you use?

The unique thing about this property was the fact that it was the first freestanding IGA (no specialty tenants) to be publicly offered for sale in QLD in 3 years. We also discovered that the tenant was doing roughly $10.5m turnover pa which reflected a 3% occupancy cost which is a comfortable level for a supermarket operator to pay rent. So we leaned heavily on these two details in our marketing and conversations with buyers.

Aside from the usual sign, online ads etc, the two interesting marketing elements worth mentioning where we had a really good amount of enquiry from was firstly, mailing out circa 1500 one page letters advertising this property to our mail out list of retail investors. Two of the bidders enquired from these letters which certainly made it feel worthwhile.

However the standout marketing method by far was sending out a nondescript ebrochure to our retail investor database prior to commencing the marketing campaign. All it had was just a picture of the property, a simple headline and encouraging anyone interested to register their interest early. From this we had over 50 investors register their interest within 1 hour and in total 78 register their interest within 2 days.

What level of enquiry did you get?

Just over 130 enquiries

What was the final result?

The sale price of $4,168,500 reflecting a 6.43% yield with just over 130 enquiries and 8 registered bidders. During the auction there were a total of 19 bids starting at $3,200,000 and selling for $4,168,500. The auction was quite competitive with an interstate private investor and Queensland based private investor battling it out to the end with the final bids in $100 increments.

The biggest hurdle was the fact that we were selling a franchised IGA (ie an independent operator) in a regional town with a population of 3,400 people and there was a full line Woolworths anchored shopping centre down the road. Interestingly we were called by a valuer who told us that they had been instructed to value the same property in early 2021 with the same 10 year lease and the valuation came in at 8%. We expect that this is a reflection of a lack of sales evidence that existed considering limited comparable sales in the last few years. Overall, franchised IGA supermarkets in regional locations have traditionally sold in the 7-9% yield range and this sale at 6.43% sets a new benchmark for a franchised regional IGA which we are grateful to have been a part of.