Ongoing population growth and city sprawl continue to drive national interest for Large Format Retail (LFR) assets due to expansive land holdings and strategic positions.
Investors are attracted by the high-yielding retail sub-sector as it provides a materially higher investment return when compared to industrial, neighbourhood shopping centres and supermarkets. Over the last decade, the average yield for LFR relative to other sectors sits at 7.46% compared to 5.84% for the industrial sector, 6.14% for neighbourhood shopping centres and 5.58% for supermarkets.
Over the same timeframe, LFR gross rents have only seen 13% growth (1.3% pa), while industrial prime rents have increased by 85% (8.5% pa), which has seen the cost arbitrage for retailers to store goods off-site materially close.
Investors are seeing attractive rental growth, greater depth of retailer demand and a growing requirement for larger spaces. Buoyed by strong sales, retailers are opting for bigger stores with a larger back-of-house to manage omnichannel sales.
Colliers director, Tim McIntosh said, “The gap between LFR rents to Industrial rents has changed materially over the last decade. Retailers have recognised it is more cost-effective to have larger retail stores where they can optimise their omnichannel sales across in-store, click and collect and last-mile delivery as transport costs and industrial rents limit the value arbitrage of storing off-site,”
“Some investors have recognised retailers are leading the growth in the sector, with strong sales over the last four years seeing tenants opt for larger store footprints and a willingness to pay higher rents after a stagnant decade of limited rental growth, while yields remain highly attractive relative to other investment sectors.”
The successful off-market sale of HomeCo Parafield in South Australia to funds manager and property developer, Accord, embodies this curve.
The sale of HomeCo Parafield was secured by Colliers agents, Tim McIntosh and Jordan Schmidt for $28.5 million, achieving a premium to book value. Anchored by Officeworks, the centre is 100% leased to national tenants across 15,571 square metres with a 3.7-year WALE.
Another recent example of new buyers entering the sector is Blackfox Property’s recent acquisition of Shepparton Retail Hub in Victoria for $11.61 million. The Officeworks-anchored LFR centre was sold by Colliers’ Tim McIntosh and James Lawson and Stonebridge following an on-market campaign late last year.
“These recent transactions highlight the strong trading assets, the strength of the LFR sector and depth of demand from investors,” McIntosh added.