Cheers! Dan Murphy’s a dream tenant for landlord investors

Liquor retailer Dan Murphy’s credibility as a tenant is underpinning the strong prices being paid for the freehold of its stores by investors.

A private consortium has set a record-low 2.94 per cent yield for a Dan Murphy’s store in Pakenham, on Melbourne’s south-east urban fringe, forking out $14.75 million for the freestanding store.

The sharp price paid by the consortium bettered a previous benchmark result set by a family of Italian heritage when they paid $22.5 million in 2017 – at the time one of the sharpest retail yields around at 3.22 per cent – to snare Dan Murphy’s Alphington outlet which also included group’s head office in Heidelberg Road.

The latest deal also comes hot on the heels of an investor paying a benchmark 3.48 per cent yield for the liquor retailer’s Malvern outlet, which fetched $21.1 million last month.

The Pakenham store sold via an on-market expressions of interest campaign handled by JLL’s Stuart Taylor, Tom Noonan, MingXuan Li and Jarrod Herscu and Burgess Rawson’s Zomart He, Matthew Wright and Billy Holderhead.

The Dan Murphy’s tenancy is on a large 1.216 hectare parcel at 8 Portobello Road that included 83 carparks and additional vacant land which gave buyers a potential development upside, Noonan said.

The liquor outlet holds a 15-year lease over the store with options to 2056 and provides net rental around $433,559 a year, including base rent and percentage rental.

The seller of the Pakenham store paid $3,658,000 for the block in November 2008.

The campaign generated more than 400 enquiries and 15 bids from a range of private investors and developers, including several sourcing money offshore, the agents said.

Retail transactions this year are subdued in Victoria. Stock levels and transaction volumes are down across the board after record volumes seen last year.

“There has only been few major retail assets transact this year, with neighbourhood and subregional centre transactions being extremely quiet. There is no doubt that vendor confidence at the top end has waned,’ Taylor said.

Only around $676 million worth of retail property has sold in the year to date, a sharp 65 per cent drop on $1.96 billion sold by this point in 2021.

Noonan said private investors, who commonly can stump up large sums of equity to fund their purchases, are not as affected by steep rises in interest rates and are still bidding competitively for premium assets compared to other investors who are reliant on debt.

“It’s somewhat of a two speed market I guess,’ Noonan said.

Dan Murphy’s has about 250 stores nationally. Its outlets often hold a virtual monopoly in the area where they are located meaning the group rarely needs to relocate stores.

That geographical longevity is prized by landlords and investors alike and creates a Dan Murphy’s ‘premium’ over other retail investments.

Dan Murphy’s owner, the $13 billion ASX-listed Endeavour Group, said on Monday it generated $2.49 billion sales in its stores during the September quarter, down 6.2 per cent on the previous corresponding period.

“Our year-on-year comparison shows a predictable decline as we cycle the unique spikes in demand created by COVID-19 restrictions that particularly affected key population centres of New South Wales and Victoria this time last year,’ chief executive Steve Donohue said.

Simon Johanson, The Age

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