The Sunbury Showrooms retail centre in Melbourne, one of the large-format retail centres that sold on a record low yield. Photo: Supplied

Large-format retail the best-performing asset class: CBRE

Larry Schlesinger|Apr 17, 2019

Large-format retail centres – previously called bulky-goods centres – were the best-performing commercial property assets in 2016 on a yield compression basis, according to research by CBRE.

Over 2016 the commercial real estate agents said yields compressed by an average of 60 basis points to 7.6 per cent from 8.2 per cent as investors, competing for a small pool of available assets, drove up values.

CBRE said yield compression among large-format retail centres had outstripped office, industrial and traditional retail property by almost 50 per cent over the past 18 months.

Large-format retail centre sales last year were dominated by the biggest ever transaction in the sector when the listed Aventus Retail Property Fund acquired a portfolio of five homemaker centres from US private equity giant Blackstone for $219 million.

The Logan MegaCentre, acquired by Aventus. Photo: Supplied

The Blackstone-Aventus deal, which was struck on a 7.4 per cent yield, recalibrated values across the sector.

The two most recent sales – a regional retail centre in Bathurst, NSW, and another in Sunbury, Victoria – were struck on yields of 7.4 per cent and 6.5 per cent respectively.

“Investors want exposure to retail, and with shopping-centre stock levels 27 per cent down on last year, large-format retail centres are in high demand,” said CBRE national director of retail investments Mark Wizel.

The liberalisation of planning rules, particularly in Victoria, which allow for a much wider tenant mix beyond traditional bulky-goods retailers like furniture and hardware, has also added to the appeal of large-format retail centres.

CBRE said that over the past 12 months there had been a significant spike in interest from offshore groups for large-format retail centres.

This overseas demand was highlighted by the sale of the Sunbury Showrooms north of Melbourne to a Chinese investor group on a record low yield of 6.5 per cent. It also represented the first Victorian large-format retail centre purchased by an offshore Chinese investor.

CBRE’s head of large-format retail, Chris Parry, said adding to investor demand was tenant performance, which had been driven by a boom in home renovations and growth in demand for household goods.

“Higher house prices and the lower interest rate environment sparked a surge in home renovation activities, with people increasingly opting to upgrade their existing home,” Mr Parry said.

“This has supported a strong base for retail growth in the household goods sector, with many operators looking to expand with either larger stores or additional outlets in new locations.”

Large-format retail remains a highly fragmented sector, where the two biggest owners Aventus and Harvey Norman hold a combined 27 per cent of the market.