Supply shortages to also drive rental growth in the sector. Image: Canva.
  • Institutional buyers leapt from 29% to 55% in 2022
  • Strong population and wages have historically correlated with LFR sales
  • Supply will be hard to come by, with industrial potentially cannibalising LFR stock

Interest in Australia’s large format retail (LFR) sector has nearly doubled from 2021 to 2022, according to the latest CBRE report, with more investors likely to be drawn in by forecasts of strong population growth, scarcity of supply, and healthy sales occupier sales growth.

The May 2023 LFR report found that institutional buyers accounted for 55% of Australia’s large format retail (LFR) acquisitions in 2022, up from just 29% of the purchasing activity in 2021.

Population and wage growth to drive the sector

Australia is projected to record the second-highest population growth rate in the developed world at 15.3% between 2023 to 2033, a likely driver for significant housing demand and an associated tailwind for LFR sales figures, according to CBRE Research Analyst Darcy Badgery.

That percentage works out to some 4.43 million people, with the report estimating a $45 billion additional retail spend from migration-related demand over the period, or $4.1 billion annually.

Consumer habits are also likely to drive demand for LFR stores.

CBRE Research polled 20,000 people globally, with 1,006 respondents from Australia.

Four in five preferred to shop in-store for DIY products, the report noting the result: “… validates the requirement for physical LFR stores in Australia.”

The poll also reinforced the notion for homewares, with 71% preferring to shop in-store for white goods, electrical, and furniture.

Among other drivers, the report recalled Reserve Bank of Australia (RBA) forecasts for wage growth, to reach 4.2% year on year in 2023., the fastest pace since 2009, before stabilising to 3.8% by mid-2025.

“LFR sales have historically correlated with wage and population growth and result in increases in discretionary spending for household goods,” said the report.

Sales continue to rise

Despite the cost of living concerns and inflation, sales remain strong.

“The demand for household goods, a major occupier in LFR assets, is validated by the 10-year average annual growth of 4.6% or $2.9 billion per annum (from 2013 to 2023),” said the report.

Occupier sales growth has also been strong, with the report noting an annual sales growth of 6.7% from before to after Covid (for the five major listed LFR retailers).

Scarcity in supply

The strong levels of population growth could also lead to a chronic LFR shortage, said Badgery, “… with just 711,845 sqm of space currently in the development pipeline between now and 2026 – equivalent to just 0.41 sqm per additional person.”

Shortages may also be exacerbated due to the cannibalisation of LFR by the industrial sector:

“Particularly in Sydney, where the industrial vacancy rate has hit a record low of 0.2%, 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.”

Darcy Badgery, CBRE Research Analyst

James Douglas, CBRE Senior Director, Retail Capital Markets, noted, “LFR assets are traditionally tightly held and rarely traded, as investors are attracted to strategic landholdings, which may offer a higher future use, transparent and reliable cashflows and higher than average expense recoveries.”

From a rental perspective, CBRE’s report forecasts that Sydney and Melbourne will maintain the highest growth rates of 5.1% and 3.9% respectively in 2023, supported by these cities having the highest expected migration intake and associated population growth.



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