Lendlease fund’s sale of Cairns Central complex for $390m marks a reset in malls’ value

Values have been savaged since peaking in the last property boom but this latest sale by a Lendlease fund shows centres are now trading around their book values.

Funds house Fawkner has bought Cairns Central.

The big reset in the shopping centre market is hitting its straps with a fresh deal that will see a fund run by property company Lendlease sell its huge Cairns Central complex in Far North Queensland.

Funds house Fawkner has bought the centre at a headline price of $390m, with the regional mall to finally sell after two higher bids made earlier this year fell away when interest rates were rising.

The elongated deal comes amid a broad rerating of major retail property assets, ranging from large malls to subregional centres, with syndicators stepping up to buy from big institutions.

Values have been savaged since peaking in the previous property boom, but centres are now trading around their book values.

Private investors and fund managers are being drawn to retail deals partly due to the sector’s operational resilience, with major landlords and Westfield owner the Scentre Group, and Vicinity Centres, co-owner of Melbourne’s Chadstone shopping centre, turning in strong results.

Fawkner is already putting its stamp on the subregional shopping centre market as the values in the sector are reset by deals, including its recent purchase of Port Macquarie’s Settlement City in NSW and the Midland Gate shopping centre in Perth that it bought for $465m.

The funds house paid about $107m for the NSW centre, which was the last of a near $400m portfolio of convenience-based assets sold by an unlisted Lendlease-managed fund.

Fawkner has timed its run into the regional market and the sector is expected to become a strategic focus for the group as it is tipped to perform even if the economy slows.

Industry experts say shopping centre values have led the way in being reset while offices still have further to drop, as retail rents were recalibrated coming out of Covid-19, retailer store numbers were rationalised, and centres have produced a strong underlying performance at the asset level.

Inside funds manager Fawkner’s latest purchase, Cairns Central.

Fawkner and other buyers are picking up centres on the basis that they offer compelling returns compared to other sectors and the fact that there is limited new supply of space as building costs soar.

After years of gloom about the prospects of larger malls, they are also trading well. Many larger shopping centres are drawing more shoppers as they provide more services and entertainment options in the wake of the pandemic, while many everyday cat­egories are also up.

Retailers are under pressure from higher rates cutting into discretionary spending, but landlords have been protected partly by leases linked to rising inflation and by a scramble for space in key centres.

The Cairns deal, being struck on a passing yield of about 7.5 per cent, is Queensland’s largest regional shopping centre transaction since 2017, when AMP took out a 50 per cent stake in Indooroopilly Central for $800m from CSC.

Lendlease’s flagship unlisted retail fund put the asset on the block earlier this year and in May won interest from Queensland real estate group McConaghy Properties at about $430m, before funds group Haben also looked at buying it.

Lachlan MacGillivray of Colliers International and Sam McVay of McVay Real Estate brokered the deal for Lendlease.

CBRE agent Simon Rooney represented Fawkner Property. The Cairns acquisition closely follows Fawkner’s Midland Gate acquisition with PAG, which settled last month for $465m.