Big Opportunities in Our Local Large Format Retail Sector

The Large Format Retail (LFR) sector is a key cog in the Victorian commercial real estate landscape and our nation’s economy more broadly. It was also one of the most resilient property asset classes during the pandemic.

In June last year, the Large Format Retail Association revealed that over a quarter of Australia’s retail sales ($92.5 billion) were made at these properties, which comprise a gigantic 5.34 million square metres in land area across the country.

Because these retail properties come in all shapes and sizes – from expansive heavy-hitters in our capitals to smaller compact centres in regional areas – this creates investment opportunities for groups ranging from ‘mum and dad investors’ through to big institutions.

Demand Drivers for Large Format Retail Properties

Sales activity for retail properties within commercial hubs has been intensifying over the past 12-months, especially in suburban and regional areas, with individual tenanted investment assets in the $2m – $4m price range leading much of the transaction volumes.

These price-point-driven commercial real estate opportunities are favoured among all investor groups, as they are commonly tenanted by ASX-listed corporations or national retailers and enjoy long-term leases of up to 10 years – effectively providing landlords with a set-and-forget income stream.

While there has been a flurry of recent sales activity in the sub-$4m bracket, we are seeing multi-unit-sales for properties within the same land parcel surge in popularity too. And in the current market, it is not uncommon for price tags to reach $20m.

The Large Format Retail industry is not new to Australian commercial real estate, however things like updated construction techniques, the considered locations where properties are built and their long-term tenant lease structures are driving demand levels among buyers.

With Victoria’s population growing rapidly, developers and builders are continually innovating in the sector to keep pace with the expanding community, using precast concrete to construct new projects quickly that come pre-equipped with the operational infrastructure required to run a business.

Why Invest in Large Format Retail Property

Generally speaking, new Large Format Retail assets are built faster, while being considerably less expensive to construct and maintain.

So, for developers and owners, this means your investment will be operational and generating returns faster than traditional commercial asset classes, as well as provide an added layer of financial security as the operator will likely stay there for their full lease tenure. Thanks to these leasing characteristics, this practically creates a silent investment property that offers diversity to traditional retail and commercial real estate portfolios.

If you would like to learn more about the Large Format Retail market, current opportunities available through Jones Real Estate, or discuss a separate property matter, please reach out to us at info@jonesre.com.au.