Victoria, 29 January 2015 – A growing number of non-traditional retailers are entering the large format retail space, according to a new CBRE report that cites Victorian planning reform and population growth as two of the key drivers.
CBRE’s latest ViewPoint report shows that retailers are realising the affordability and benefits of an outlet in a large format retail centre, causing an increase in the supply of this type of product and favourable conditions for landlords.
The Traditional Environment
Large format retail has traditionally been perceived as a destination shopping experience where shoppers travel further for less frequent purchases such as whitegoods and furniture. Consequently, this asset class has seen lower volumes of foot traffic and lower rents compared to shopping centres.
CBRE’s report has found that with shopping centre rents on the rise, retailers are now looking elsewhere, and large format retail centres are beginning to welcome a variety of other retailers.
Where are we now?
The entrance of non-traditional retailers is helping improving sales in large format centres, increasing centre demand, and having a positive effect on vacancy levels. It is estimated that the number of operating centres in Australia has increased from 134 in 2009 to 203 in 2013/2014, representing a 51% increase. Additionally, large format retail sales for the financial year ended 30th June 2014 are estimated to make up 20.1% of all retail sales. Regional shopping centre rents have also increased steadily over this time from approximately $930 per sqm in 1999 to over $1,560 per sqm in 2014, representing a 45% increase.
Despite both categories experiencing similar levels of growth, large format retail remains a more affordable option for retailers. These affordable rents have also encouraged the entrance of retailers such as pet goods, sporting goods, 24 hour gyms and supermarkets, which have typically been found in shopping centres but have not had a presence in the large format sector.
Case Study: Pet Retailers
Pet specialist groups have been aggressively growing their footprint in many centres across Australia. In 2011, 14 pet retailers were operating in large format retail centres in Victoria. Three years on, this figure has almost doubled with 27 in operation. Recent studies have found that pet owners are investing more in premium pet products as disposable income rises, and the purchase of premium products is seeing owners travel to specialist retailers, as opposed to the traditional supermarket. As Australia's population rises, along with household income, it is likely that pet ownership will continue to increase, strengthening demand for these products.
Where will growth occur in Victoria?
In Victoria, the Southern regions are expected to have the highest levels of population at over 1.1million in 2018 and over 1.2 million in 2023. The Central region is expected to increase at the highest rate, at 4%. Given the scarcity of land in this region, it’s unlikely a new centre would be feasible. Meanwhile, the West and South East regions will grow at 3%. With few centres in these areas in relation to expected population growth, it appears possible to accommodate further supply. Larger residential catchments should strengthen demand for gyms, dining and pet retailers with shoppers closer to the large format retail centres and encourage more frequent visitation.
Planning Reforms
Tenancy mix changes within large format retail centres can be in part attributed to zoning amendments, key among them the July 2013 reforms to Victoria’s planning zones, which created flexibility in the planning system for retail development across the country. The Large Format Retail Association highlights that changes in Victoria are reducing the amount of regulation and involve the removal of restrictions while creating an increase in the supply of land for retail development and use.
Philippa Bordonaro, CBRE Research Analyst said; “The changes to Victorian Planning Laws have driven a greater diversity of uses and encourage more retailers to centres. The removal of floor space restrictions has allowed smaller tenancies to exist, which has seen the entrance of a number of supermarkets and other food outlets and had positive impacts on retail vacancy. The relaxing of the definition of a bulky goods retailer has also allowed more retailers to occupy space within a homemaker centre.”
Chris Parry, CBRE’s Head of Large Format Retail said; “CBRE stalled work on the Mentone Centre post the GFC, due to poor confidence in the sector and the viability of large number of businesses. Following planning reforms, we have struck deals with Aldi Supermarket, Petbarn, Tasman Meats and Amart Sports which previously would have been prohibited or difficult to get approvals for. The centre is a 32,000sqm development anchored by the largest single level Bunnings in Australia.”
Outlook
Population increases around large format retail centres should strengthen retailer demand for space, which may lead to rental growth and cause large format retail centres to evolve.
As the pool of potential tenants increases with the entrance of non-traditional retailers, it is likely that vacancies will remain low. Non-traditional retailers should continue to favour large format retail over shopping centre locations, as the rental gap between the asset classes grows.
Victorian planning reform is also driving diversification, and CBRE expects that new centres opening across Victoria will embrace a wide mix of retailers assisted by these reforms.
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