The landmark David Jones building in Melbourne has sold for $223.5 million, but the iconic department store that occupies the Bourke Street Mall site isn’t leaving – it has an 18-year lease.

South African company Woolworths Holdings, which used to own the upmarket David Jones brand, started looking for a buyer for the building in November last year before stitching up a deal to sell the property to Australian fund manager IP Generation.

Originally constructed in 1911 for Buckley & Nunn’s department store, the building on the north side of the busy shopping mall next to rival retailer Myer is one of the longest continually operating retail spaces in Australia.

The historically significant seven-level building was acquired by David Jones in 1982.

Australia’s struggling economy, high interest rates, and the cost-of-living crisis confronting the nation’s shoppers have plagued the country’s retailers.

Rival department store Myer suffered a share slump of nearly 25 per cent last month after it revealed second-half-year sales covering the key Christmas and Black Friday trading periods that were below investors’ expectations. Its stock is yet to recover lost ground.

The deal to sell David Jones’ Bourke Street store will boost Woolworths Holdings’ coffers.

The South African company entered the Australian retail market with a flourish in 2014 when it bought the David Jones business for $2.1 billion. However, just eight years later, it sold the department store business to private equity firm Anchorage Capital Partners in late 2022 at a substantial discount of $100 million. That deal didn’t include any of the properties occupied by the upmarket brand.

As it struggled to make revenue from David Jones, the firm shed its stores. It sold off the brand’s flagship Sydney premises to property giant Charter Hall in late 2020 for $510 million. During the same year, it had already offloaded the David Jones Menswear store on the south side of Bourke Street to fund manager Newmark Capital for $121 million.

David Jones’ lease on its Melbourne building runs for another 18 years. Inside, the store covers 25,000 square metres, where the group trades luxury retail brands, cosmetics, homewares and clothing.

JLL agent Nick Willis, who facilitated the Bourke Street building’s sale with colleague Sam Hatcher, said few big-city retail stores, like the David Jones building in Melbourne, have been selling to investors. Sales are down 87 per cent from their 10-year average, he said.

But city retail vacancy rates had recovered, Willis said, and were now at a 5-year low of about 5 per cent, under the 10-year average.

IP Generation’s Chris Lock said the David Jones building would be combined with another recent acquisition, Cranbourne Park Shopping Centre, in an investment fund worth $350 million.

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