Private investors dominate large format retail investment market with two-thirds share

Investors are continuing to focus on large format retail (LFR) centres due to population growth predictions and limited supply, which is adding to the sector's income and value potential.

With a total of 332 LFR centres across Australia, the asset class is one of the most tightly held sub-sectors in retail, with a limited number of centres transacting each year. 

CBRE’s latest Large Format Retail Australia report shows that interest from private investors has significantly grown with a decline in institutional capital investment being seen. Larger private buyers in 2023 equated to 66% of transactions, compared to 2020 where only 36% of buyers were private.

CBRE Head of Retail Research, Amita Mehra, noted that ongoing buyer interest is expected to be fueled by housing demand, projected LFR rental growth and a limited supply pipeline.

“Australia’s population growth is expected to exceed 15% between 2023-2033. This equates to an additional 4.43 million residents nationally by 2033. We anticipate an additional retail spend of $45 billion from migration related demand over 2024-2033,” Ms Mehra said. 

“After a flat 2023 where national LFR rents grew 0.1%, the market is projected to rebound in 2024 with a 3.0% increase. Rental growth will be led by Adelaide at 3.8% followed by Melbourne at 3.6% and Sydney rebounding to 2.6% after declining 6.6% in 2023. Brisbane and Perth are also forecasting healthy rental growth of 2.5% and 2.1% respectively in 2024.”

James Douglas, CBRE Senior Director, Retail Capital Markets, said “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.”

“Regional locations are benefiting from retailer expansion plans, with investors looking to capitalise on these strategies. 

The report showed an acute lack of supply over 2023, with new national retail floorspace introduced to the market at a 10-year low, of which 26% stemmed from LFR.

The LFR sector is also seeing the emergence of a new retail category known as “lifestyle”, which represents a shift towards more day-to-day lifestyle offerings rather than traditional hardware or furniture categories.

“Retailers and occupiers including Chemist Warehouse and Autobarn belong to this new category. 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. Notably, Chemist Warehouse is expanding from shopping centres to LFR spaces, which provide increased space, extended trading hours and lower rents,” Ms Merha added. 

From a rental perspective, CBRE’s report shows the locational advantages and 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. 

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