Australia: Record Aldi deal evidence of grocery retail strength

Discount Retail Chain Aldi Australia (part of Aldi Süd and privately owned) sold its four Australian distribution centres. A joint venture between Charter Hall and insurance giant Allianz acquired them in a sale-and-leaseback deal A$648 million (US$ 488mio).

As real estate investors navigate the economic fallout from the COVID-19 pandemic, they are hunting for defensive strategies that are more likely to see them safely through the downturn.

This is particularly true of tenants in the grocery and non-discretionary industries, which are at the forefront of changes in consumer behaviours, leading to increased long-term demand, says Tony Iuliano, head of industrial capital markets and logistics.

“This portfolio owned by global discount retailer Aldi had all the right investment ingredients: institutional grade distribution centres in the sought after food sector, triple net leases, seven-year lease covenants, and total income of A$30.1 million (US$ 22.7mio) per annum,” he says.

The volume of capital looking to be placed in industrial assets is significant, Iuliano said on the JLL Perspectives Podcast. “From our recent experiences, particularly with the Aldi process, we went far and wide around the globe with that process, and what we identified were probably an additional 10 to 15 other groups that weren’t in the market previously. So the demand will continue to grow.”

Australia’s dominant grocery retailers have benefited significantly from lockdown measures throughout March and April. Unprecedented demand for non-discretionary goods in stores and online as shoppers stocked up and panic-bought, led to a revenue increase at Woolworths of 10% in the most recent quarter. Coles saw sales go up by 13% over the same period, while Australia has since been identified as one of the worst panic buying nations in the world.

As stockpiling behavior escalated, supermarkets opened pop-up distribution centres in New South Wales, Victoria and Queensland to cope with the surge in demand, while Coles and Woolworths had to shut down their home delivery services until they could mobilise resources.

While German discount retailer Aldi has also benefited from increased demand for food, its sales long term are expected to be boosted by its relative value proposition as consumers feel financially uncertain following the crisis, according to the Aldi: Coronavirus (COVID-19) Company impact report.

The four distribution centres in the Aldi portfolio are located along Australia’s eastern seaboard, in Prestons and Minchinbury in Sydney, Dandenong, in Victoria and Brendale, in Brisbane.

As economic uncertainty continues, sale and leaseback deals are expected to increase over the remainder of the year as some retailers leverage the opportunity to take capital out of their real estate assets and invest it in their core business, or online chann