Having frozen at the onset of the coronavirus crisis, large-format retail deals are flowing fast after the virus proved a bonanza rather than a disaster for many big-name tenants.
The surge of confidence in the so-called “big box” sector means many retailers are taking advantage of the wider retail disruption to extend their footprint, although agents caution the expected bargain leasing deals have not eventuated.
According to CBRE’s Shane Cook, many tenants “panicked” in March and fired letters off to landlords pleading for rent abatement.
But by May, it was clear that sales in sectors such as office supplies and home improvement had, in fact, skyrocketed.
“It felt like it was going to be a gap year for deals, but when it became apparent in June that the world wasn’t exploding, they started up again,” said the Sydney-based head of CBRE’s national large format team.
“Landlords were willing to help tenants as long as they could show a material impact, but a lot of retailers just couldn’t do that.”
Large Format Retail Association chief executive Philippa Kelly said the sector’s resilience was reflected in the reported numbers from ASX listed “big box” retailers such as Wesfarmers (owner of Bunnings and Officeworks), Harvey Norman and JB Hi-Fi (which also owns The Good Guys).
She said their typically large car parks had been amenable to “click and collect” arrangements, while their airy and open formats allowed for more effective social distancing.
“In the Melbourne lockdown, click and collect and car and collect were well used,” she said.
“But even without the lockdown, many consumers were consciously trying to shop in a COVID-safe way.”
According to John Karlovasitis, Colliers Sydney-based director for large format retail, many retailers had done “extremely well” and were looking to expand.
“Large format has proven to be a pandemic-proof sector,” he said.
Expanding retailers included Autobarn and Plush Furniture, which has taken out space at large-format centres in West Gosford and Auburn.
“Furnishing and bedding in particular was a dying sub sector pre COVID-19 but it’s now looking to expand,” Mr Karlovasitis said.
In Victoria, CBRE reports occupancy levels have averaged 90 per cent while many centres are fully leased.
The firm handled new leases for JB Hi-Fi and Chemist Warehouse at the Chadstone Homemaker Centre, while on the other side of town, Sydney Tools and Repco have taken up space at a Caroline Springs large-format hub.
Autobarn has also committed to space previously occupied by Harris Scarfe at the Lincoln Mills Homemaker Centre in Coburg.
“Victoria’s large-format sector has been performing very differently to other retail asset classes,” CBRE associate director Ryan Arrowsmith said.
“We’re seeing particularly strong demand for sites that can be accessed externally allowing customers to park outside and have minimum contact.”
Leedwell Property partner Chris Parry said overall Victorian large-format transactions were steady in the September quarter compared with a year previously.
However, COVID-19 has resulted in lease terms shrinking to 72 months, compared with 120 months in the September 2019 quarter.
“We have been seeing pressure from retailers for lower rental growth. However, these are still largely being upheld at 3 per cent,” Mr Parry said.
In Sydney, CBRE has done deals for seven tenants at Bankstown’s home-focused centre, including Beds R Us and Koala Living.
Mr Cook said landlords were taking the opportunity to extend lease terms for one to two years, with typical incentives of 15 per cent.
“We are structuring deals in a way in which both retailers and landlords feel they are getting a win,” he said.
Meanwhile, the Large Format Retail Association estimates there is 20 million square metres of large format floor nationally.
The “big box” epicentre of Victoria accounts for 5 million sq m – 21 times the floor space of Chadstone, the country’s biggest conventional shopping mall.
Source: Thanks smh.com