Prime neighbourhood shopping centres are commanding record sub-6 per cent yields as low interest rates spur investors to pay more for assets.
Yields have hit 5.75 per cent and are heading lower. Neighbourhood shopping centres, focused on food and drink, are viewed as recession-proof investments.
The last time they were near this level was in 2006 when they hit 6.75 per cent before softening to 7.75 per cent during the global financial crisis, according to Savills Australia.
"And it comes as supermarkets are under extraordinary pressure from increased competition," Savills research head Tony Crabb said.
"Yields have come down not because the asset class is perceived as better but purely because the cash rate has come down to 1.5 per cent," he said.
"Investors are looking for returns. A 5.75 per cent yield with a long lease to a listed company is better than the 2-3 per cent you get in the bank," he said.
Yields will continue to tighten so long as economic conditions remained unchanged, he said.
"If we are in the same environment we are in now then I can see 75 to 100 basis points lower, 'though it might take another year," he said.
Private investors have been priced out of the market by institutions and foreign buyers who now make up 29 per cent of all purchasers. Savills national director Steven Lerche said there was "a weight of money chasing good solid investments and that's why neighbourhood centres have always been good - we'll always be eating meat and fish and fruit and vegetables".
Recent deals at this level include the Monier Village shopping centre in Queensland sold by Vicinity for $23.9 million (a 22 per cent premium to its book value) on a yield of 5.5 per cent to Everfire Australia Unit Trust.
JLL agent Sam Hatcher, who negotiated the deal with Jacob Swan, said bidders were attracted by the centre's two supermarkets, Aldi and Woolworths.
"Having Aldi forming part of the centre, as opposed to their traditional stand-alone stores, keeps spending within the main trading areas," Mr Hatcher said.
Last November, the Forestway shopping centre in Frenchs Forest, NSW, fetched $112 million with a 5.97 per cent and the Gold Coast Reedy Creek Village shopping centre recently sold for $20.5 million on a 5.9 per cent yield.
Property players are closely watching for the results on a slew of centres about to head into due diligence including the Coburg North Village which could sell for around $30 million and the Healesville Walk Shopping Shopping Centre, tipped to fetch $27 million.
