Masters fallout likely to be muted in leasing sector
Woolworths' move to exit the Masters hardware chain have put REIT landlords Charter Hall, SCA Property and Aventus Property at some potential risk, according to The Australian.
But the fallout will not negatively impact on property values or rents in the wider retail sector, the research group BIS Shrapnel told the Australian Financial Review.
Instead BIS Shrapnel expect continued demand for household goods off the back of the residential construction boom.
Longer term yields were likely to soften when the residential construction phase started to winds down, BIS said.
After a double-digit capital growth in 2015 there is expected to be an overall lack of supply of large new retail space to drive investor demand and push up capital values.
The REITs own just four of the 62 stores in the chain, with Macquarie Group analysts suggesting that these REITs are well placed to recoup unpaid rent.
Newy listed Aventus has exposure to one Masters store in Cranbourne in Victoria in its portfolio of 15 bulky goods stores.
SCA may turn their Mount Gambier town centre store into a bulky goods store or a supermarket.
Charter Hall has a contract to buy a third Masters site to add to the two stores they currently have in Sydney and Melbourne.
"Large-format yields have firmed but they are still at a premium to other retail property, so there is scope for that gap to close further," said Maria Lee, senior project manager at BIS Shrapnel.
"Consumer demand should stay strong for the next couple of years because spending tends to lag housing construction and turnover. We are only seeing building commencement peaking now," she said.
BIS Shrapnel forecasts rental growth of over 3 per cent per annum over the next five years, compared with less than 1 per cent over the last five years, driven by continued demand for this type of retail space, as supply contracts.
New, large-format, retail supply reached over 600,000 square metres in 2015, the highest level of new building since the global financial crisis, comprising mainly Bunnings and Master store openings, said BIS Shrapnel.
Ms Lee said Woolworths had already cut back its pipeline of new Masters stores.
She anticipated the likely subdivision of numerous Masters stores. Some will be taken over by Bunnings, she said.
