Private investors power large format retail deals

Private investors have been betting big on large format retail properties that are home to furniture, hardware and lifestyle brands amid Australia’s surging population growth and limited supply.  

New CBRE research found that private buyers have come to dominate the large format retail investment space, accounting for 66 per cent of big box retail transactions last year, up from 36 per cent in 2020.  

Recent deals include the sale of the Robina Super Centre on the Gold Coast from a QIC fund to private investors for about $53m, reflecting a 7 per cent yield.  

HMC Capital also sold its HomeCo Box Hill property to private investors for about $68m at a 5.8 per cent yield in November.  

But the dominance of private investors last year came as institutional investors retreated from large format retail (LFR) deals, with national investment volumes shrinking to $409m last year.  

PropTrack economist Anne Flaherty said investment activity from institutions and overseas investors had dropped off across most commercial property markets in the higher interest rate environment.  

“Driving the decline in demand from these investors has been high capital costs, limited stock for sale, and uncertainty around pricing and market conditions,” Ms Flaherty said.

“With institutional and offshore buyers less active in the market, this is reducing overall demand.”  

However, CBRE predicts population growth, projected rental growth and a limited supply pipeline will fuel ongoing buyer interest in the LFR market.  

Big box retail has been one of the most tightly held sub-sectors in retail, with a total of 332 LFR centres across the country and only a limited number of properties transacting each year.

Big box retail is expected to benefit from population growth, as more people look to furnish and improve their homes. Picture: Getty

It comes as supply of new retail floorspace reached a 10-year low nationally, of which 26 per cent stemmed from LFR.  

CBRE head of retail research Amita Mehra said Australia’s population growth was expected to exceed 15 per cent between 2023-33, equating to an additional 4.43 million residents nationally by 2033.  

“We anticipate an additional retail spend of $45bn from migration-related demand over 2024-2033,” Ms Mehra said.  

“After a flat 2023 where national LFR rents grew 0.1 per cent, the market is projected to rebound in 2024 with a 3 per cent increase.”  

CBRE forecasts LFR rents to grow by 3.8 per cent in Adelaide this year, followed by Melbourne at 3.6 per cent and then Sydney at 2.6 per cent.  

Brisbane and Perth were predicted to see rental growth of 2.5 per cent and 2.1 per cent, respectively, in 2024.  

An emerging “lifestyle” category made up of retailers and occupiers including Chemist Warehouse and Autobarn was also tipped to help to drive LFR rental demand, Ms Mehra said.  

“These retailers are not typical tenants, they represent a shift towards more day-to-day lifestyle offerings rather than fitting into traditional hardware or furniture categories,” she said.  

“Notably, Chemist Warehouse is expanding from shopping centres to LFR spaces, which provide increased space, extended trading hours and lower rents.”  

CBRE senior director James Douglas said regional locations were benefiting from retailer expansion plans, with investors looking to capitalise on those strategies.  

Chemist Warehouse is increasingly expanding from shopping centres to large format retail spaces, according to CBRE. Picture: Getty

“We continue to experience demand for LFR assets in metropolitan and strong regional locations, with investors attracted to forecast rental growth and retailers looking to expand their store networks,” he said. 

Ms Mehra noted that the scarcity value of well-positioned LFR assets will continue supporting above-average rental uplifts, particularly in supply-constrained major metropolitan areas like Sydney and Melbourne.  

“Overall economic conditions, retailer performance, and any potential supply rebalancing will be key factors influencing the forecast trajectory from 2024 through 2028,” she said. 

Large Format Retail Association chief executive Philippa Kelly said the primary concern of the LFR sector was the lack of floor space.

“We are working across the industry, and closely with state and local governments, to address the supply by reducing zoning restrictions and expanding the availability of floorspace for large format retail,” she said.

“This has become particularly acute in NSW. Over recent years there have been challenges with costs in construction that are only exacerbated by a lack of available land to build more floorspace.

“With increasing population growth, the future of large format retail is strong and will continue to deliver strong returns for investors.”