The allure of large format retail centers (LFR) has captured the attention of investors due to promising population growth projections and a scarcity of available assets, according to a new report.
Within the realm of retail, LFR assets have long been regarded as the most tightly held sub-sector, with only a limited number of transactions taking place each year, despite substantial demand from eager buyers and a scarcity of properties.
A recent CBRE report has revealed that institutional buyers took the reins in Australia’s LFR market during 2022, accounting for a significant 55 per cent of acquisitions.
This figure marks a noteworthy surge from the previous year when institutional buyers made up merely 29 per cent of purchasing activity.
The report also suggests that continued buyer interest is poised to flourish, driven by a combination of heightened housing demand, projected growth in LFR rentals, and the persistently limited supply pipeline.
CBRE Research Analyst Darcy Badgery said Australia has one of the second highest projected population growth rates in the developed world at 15.3 per cent between 2023 to 2033, which is likely to drive significant demand for housing and an associated tailwind for LFR sales figures.
“This could also lead to a chronic LFR shortage, with just 711,845sqm of space currently in the development pipeline between now and 2026 – equivalent to just 0.41sqm per additional person,” he said.
Mr Badgery said the capital city supply situation was likely to be exacerbated by the lack of LFR centres in infill suburbs, particularly on the Eastern Seaboard.
“Particularly in Sydney, where the industrial vacancy rate has hit a record low of 0.2 per cent, it may be more feasible for some developers to rework proposed or existing LFR centres for industrial purposes, which will further impact the supply outlook,” Mr Badgery said.
James Douglas, CBRE Senior Director, Retail Capital Markets, said LFR assets are traditionally tightly held and rarely traded, as investors are attracted to strategic landholdings.
CBRE’s report predicts that Sydney and Melbourne will continue to experience robust rental growth in 2023, with growth rates of 5.1 per cent and 3.9 per cent respectively.