The large-format retail sector is enjoying strong demand in Western Australia amid a record number of arrivals in the state attracted by a low unemployment rate and relatively high wages.
Meanwhile, an undersupply of properties in this space has led to a reduction in rental vacancies and a spike in rents.
These factors have combined to make large-format retail a standout sector for WA property owners, according to recent research.
A study by real estate agency Vend Property and property economics consultancy Deep End Services found WA had the highest large-format retail spend per capita of all the states.
According to the report, in the year to June 30 2024, Perth residents spent an average of $4,963 on large-format retail products, such as white goods, electronics, furniture and textiles.
This compares with $4,360 nationally, about $4,800 in Brisbane, just above $4,000 in Adelaide and about $4,000 for Melbourne.
The study pointed out that WA’s average weekly earnings had been higher than the Australian average since 2006, at just below $1,600 this year.
This is 8 per cent above the national weekly wage.
“This generally results in higher retail spending rates on most discretionary categories, particularly as WA housing costs are often lower than in the eastern seaboard states,” the report read.
“Expectations are that the wages advantage enjoyed by WA residents will continue to be maintained throughout the forecast period to 2030.”
The state’s unemployment rate of 3.6 per cent (as of September 2024) is below the national rate of 4.1 per cent, with a gap expected to remain over the next six years.
International migration has been the driving force behind the state’s population growth, with 64,902 of the 89,000 residents who moved to WA in the 12 months to March 31 this year coming from overseas.
The state’s population increased by 3.1 per cent in this period, compared with 2.3 per cent nationally, Australian Bureau of Statistics figures show.
WA’s population growth is expected to settle to about 1.7 per cent per annum, but its rate of increase is forecast to be higher than other states until at least 2030, the report stated.
And as Vend Property managing director Jeff Klopper explained, large-format retail turnover is driven by movement in population.
“What really pushes large-format sales is not just first homebuyers, it’s the churn,” Mr Klopper told Business News.
“As a person or family sells and moves to a second home, they go and buy new products.”
This has led to increased sales for furniture, white goods and electronics stores.
Mr Klopper, who founded Subiaco-based Vend Property in 2009, added that lifestyle retailers such as BCF were benefiting from a boost in sales.
“They’ve just put in a 4,500 square metre store in Cannington; they’ve moved out of 1,700 square metres, because we’re seeing a lot of people who aren’t travelling overseas but are still wanting to get outdoors,” Mr Klopper said.
The Coxon Group-owned asset on Albany Highway was formerly a Bunnings warehouse, which was converted into a BCF and a caravan store earlier this year.
On the ground
Centuria Capital Group owns 10 large-format retail assets in WA valued at $622 million, of its national total of 24 large-format assets worth $1.59 billion.
Bruce McCully, who is the property fund’s head of retail, said Centuria had observed a greater demand for space among tenants in the sector.
“Most of the retailers we’re dealing with are getting bigger, not smaller, as population and density grows,” he said.
“[Many retailers] would be happier to make their stores bigger and keep one store in a trader area, rather than putting a second one in.”
Some industry sources suggest large-format stores may eventually reduce their physical footprint if the use of virtual reality technology is widely adopted in retail.
Mr McCully said this practice had not taken hold in WA, however.
“We talk about this stuff quite a lot internally within our business,” he said.
“Even people who work with me who are much younger say ‘I wouldn’t buy a couch before I sat on it first’.
“Even stores that are really big online still have showrooms where people can go and see the product.”
According to Colliers’ latest quarterly retail snapshot, average gross face rents in regional shopping centres in Perth range from $665/sqm to $1,170/sqm.
For sub-regional and neighbourhood centres in Perth, rents are up to $1,012/ sqm and $568/sqm, respectively.
This compares with average gross face rents of between $195/sqm and 270/sqm for Perth’s large-format retail assets.
Mr McCully said this difference in rents was significant enough to encourage retailers to move into large format.
“A lot of retailers are trying to move to large-format retail because the rents are cheap,” he said.
For example, Red Dot is relocating some of its stores from shopping centres to large-format retail centres, where the business can occupy a larger footprint.
Mr Klopper added that large format retail centres became more popular during COVID as they provided greater opportunity for social distancing than shopping centres.
“You can park your car, walk in auto doors, grab your product, tap pay with your phone, grab your product and walk out,” he said.
“There are no malls to walk through [or] undercover car parking, where people feel uncomfortable.
“The malls closed, but the large format continued to trade.”
Supply
Like in many sectors of the property market, an undersupply of large-format retail assets has led to an increase in rents.
Rents in the market segment are up 37 per cent during the past four years, while construction costs have risen 67 per cent.
According to Vend Property, an average of 250,000sqm of new largeformat retail space is built every year in Australia, with about 28,000sqm of that coming from WA.
However, last year only 60,000sqm of large-format retail space was constructed nationally, and none in WA.
“This dearth of development has led to a downwards trend on vacancy and an upwards trajectory of rents,” Mr Klopper said.
In Perth, vacancy rates in the sector have fallen from 6 per cent in 2020 to less than 2.5 per cent.
This year, close to 10,000sqm of large-format retail is being built across two centres in Belmont and Midland.
Additionally, there are 14 new centres in the pipeline for 2025 and 2026, including in Geraldton, Busselton, Albany, Margaret River, Ellenbrook, Byford, O’Connor, Mandurah and Osborne Park.
This will add about 225,000sqm of new-large format retail space to WA.
Centuria’s large format centre at 381 Scarborough Beach Road in Osborne Park. Photo: Centuria Capital Group
Mr Klopper said build costs were no longer escalating as fast as previously, which had allowed some developers to push ahead with these developments.
Family office Lester Group, however, does not believe the market is favourable to build.
Lester Group executive director Adrian Lester said the company had refrained from building anything while costs were so high.
“[To] build a large-format retail … it’s $1,900 a square metre [for] a Bunnings shed,” he said.
This compares with about $1,000/ sqm five years ago, Mr Lester added.
Lester Group executive director Russell Lester explained why the company was drawn to the asset class.
“The population is growing, everybody’s got a job, the [state] government has low debt, everybody’s got a smile on their face,” Mr Lester said.
Lester Group bought its first large format retail property in April 2020, in the midst of COVID, in Midland for $58 million.
Since then, the Nedlands-based company has purchased centres in Rockingham and Butler. Adrian Lester said that, nationally, WA and Queensland stood out as attractive places to invest.
“Retail is something that relies on consumer confidence,” he said.
“And with interest rates coming up, all of the other states are not where we want to put our money.
“We are shopping in Queensland and we are shopping here; they are the only two states we are looking [at].”
Transactions in the large-format retail space have been relatively quiet in WA, with Banjo Bond-led Cosgrove Group’s $74.8 million purchase of HomeCo in Midland the most significant deal in the recent years.
Joondalup Square, which contains 14 tenants across 13,216sqm of net lettable area, is under contract to sell to an eastern states company with a global presence.
These deals will set a benchmark for valuations in the sector, with the Midland asset transacting at a 6.5 per cent yield.
Mr Klopper said yields were compressing in large-format retail, which translated to higher valuations for these properties.
