Large format retail property face challenges: BIS Oxford Economics

The large format retail sector has suffered a slump in the pace of consumer spending growth over the last couple of years, from a peak of over 9% (in moving annual terms) to just 2%, BIS Oxford Economics’ latest Large Format Retail Property report noted.

This weak demand/strong supply scenario created challenged for landlords. the study author, Maria Lee said,

Lee said the silver lining for large format retail centres was the increasing ability for them to incorporate non-traditional tenants.

"We’re seeing more gyms, play centres, medical centres, chemists, baby goods shops, pet supplies outlets and other uses," said Lee.

"This broadening of tenant mix not only improves visitation across the week but also helps keep a lid on vacancies.

"Importantly, these tenants often pay a higher rent than the traditional large format tenants."

The report noted that planning policy across the country is gradually moving towards greater flexibility for large format centres and that, even where policy is theoretically very restrictive, there are numerous instances of exceptions being made.

However, Lee cautions that the sheer speed and quantum of the impending supply peak is likely to cause some temporary fallout.

"Locational imbalances of supply and demand could see some centres suffer.

"And smaller centres, in particular, are at risk of falling income if one or two tenants fall over in the continuing challenging retailing conditions."

It noted weak consumer demand is set to continue to the end of the decade, against a backdrop of muted economic and household income growth.

Meanwhile, supply is surging as former Masters stores are converted into large format retail centres and as other projects that had been trying to secure pre-commitment for some time now go ahead.