Large format retail back in favour as vacancy drops and sales return to growth

Vacancy rates in the large format retail sector have dropped significantly in the first half of 2014, amidst a landscape of growing supply to meet increasing demand according to recent research by Colliers International. 

In the first half of 2014, the overall national vacancy rate in large format retail dropped to 2.7%, down from 6.9% in the second half of 2013. Significant declines were seen across the country, with Brisbane, Adelaide and Sydney leading the charge. Perth was the only capital city to buck the trend, experiencing a slight increase from 3.0% to 3.8%.

Market Total SydneyMelbourne Brisbane Adelaide Perth
7.5% 6.35% 7.7% 9.5% 9.1% 3.2%
6.9% 6.0% 7.2% 9.0% 8.5% 3.0%
2.7% 2.5% 5.7% 0.8% 0.9% 3.8%

Source: Colliers International

The growing demand for large format space is being led by hardware, however, homemaker centres are also experiencing more positive market fundamentals, according to Tony Draper, National Director of Large Format Retail at Colliers International. 

“In recent years the supply pipeline for large format retailing has been dominated by stand-alone hardware retail developments,” said Mr Draper. “This has been driven by a focus on market share growth between Bunnings and Masters, resulting in a further 647,628sq m of space to be completed nationally in the hardware category across 2013 and 2014.” 

Source: Colliers International

“However, future integrated homemaker centre developments are also forecast to make a comeback on the back of improving consumer sentiment and generally stronger retailing conditions.” 

Large format retailing became less attractive to investors following the global economic downturn and this impacted both capital values and yields. 

“Large format retail was seen as more risky for some institutional property owners than other retail classes,” said Dale McDermid, National Director of Retail Real Estate Management. “However some centres with higher vacancy took the opportunity to adjust the mix of tenants in their centres, and this has had favourable results. 

“The Colliers International large format retail team has worked closely with many of our clients to re-position a number of Homemaker centres that were picked up in the last few years in a counter cyclical play by astute investors. A strategic approach to the tenancy mix resulting in a broadening of the retail offering in many centres has resulted in strong growth in daily traffic flow and subsequent retail sales. 

“In a continuing low interest rate environment these centres with strong lease covenants, an excellent tenancy mix and strong customer amenity and access are now well sought after in an ever tightening investment property market.”

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