Damian Collins, Chairman of Westbridge Funds Management, discusses a key opportunity unfolding in the commercial property market and how Westbridge is responding.
It’s fair to say we have just come through an extraordinary five years.
The COVID-19 pandemic has reshaped many aspects of our lives, including where and how we shop.
While the acceleration of e-commerce has challenged certain retail models, others are offering increasingly compelling opportunities for fund managers and investors.
The Large Format Retail (LFR) sector, in particular, is a sub-market we’ve been keeping a close eye on at Westbridge, with its unique model and demand dynamics signalling promising prospects for the years ahead.
Here’s why we believe this sector presents attractive opportunities for investment.
But first, what is Large Format Retail?
Large Format Retail refers to retail stores that occupy extensive floor space, often as standalone buildings or part of larger complexes.
These stores typically specialise in bulky goods such as furniture, pet supplies and home appliances and are often characterised by “big box” retailers such as JB HiFi, Harvey Norman, The Good Guys and Spotlight.
Large Format Retail centres are those retail precincts where a number of these “big box” stores operate from one location, providing a convenient shopping experience for consumers while ensuring steady foot traffic for tenants.
Robust demand from tenants
One of the key advantages of the LFR model and a crucial factor underpinning its appeal over other retail segments is its cost-effectiveness.
Occupancy costs per square metre are lower than those of enclosed shopping centres, making these assets highly appealing (and more economically viable) for tenants. From an investment perspective, this has important implications for their long-term income resilience.
Adding to their appeal, many of these centres are anchored by national and ASX-listed tenants. This provides an opportunity for LFR investors to receive a regular income stream from blue-chip companies, making these assets highly attractive from a cashflow perspective.
The strength of the LFR model from both a tenancy and investment perspective has been highlighted by the sector’s recent rental performance.
While other retail sub-sectors have undergone a resetting of rents to varying degrees over the past four years, JLL research shows that the LFR sector has maintained consistent rental growth since Q4 2020. This growth has accelerated in recent quarters, resulting in an annual rental uplift of 3.5% across 2024.
Tightening supply and rising construction costs enhancing potential
While tenant demand has remained robust, the supply of quality LFR assets has become increasingly constrained.
According to JLL, 2024 marked the lowest level of national Australian supply in their recorded history across all commercial real estate sub-sectors, with the LFR sector remaining near the bottom of the supply spectrum nationally.
While peaking at 5.6% in 2020, the national LFR vacancy rate stood at just 3.3% as of December 2024 (JLL), highlighting the scarcity of available space and resilient demand in this sub-sector.
These supply constraints are being further compounded by rising construction costs, which are making the development of new LFR centres increasingly challenging in the current market.
As a result, existing LFR assets are becoming even more valuable, creating strong investment potential, particularly in locations where appropriately zoned land is already scarce.
A resilient retail model
Despite broader market challenges, the LFR sector continues to demonstrate resilience and adaptability as a retail model.
Unlike internal shopping centres that face direct competition from e-commerce, LFR assets function as both physical storefronts and distribution or pick-up centres. This dual role enables them to work with, rather than against, online retail, in turn positioning them as a key component of the evolving omnichannel retail environment.
Additionally, LFR assets have the potential to evolve in the long term to support last-mile logistics and e-commerce supply chains, further reinforcing their value proposition in a rapidly changing retail landscape.
Large Format Retail investment – where we see opportunities for investors
At Westbridge, we recognise the immense potential within the LFR sector and are actively tapping into this for our investors.
Given the recent uplift in rental growth, we’re seeing many centres that remain under-rented, providing a unique opportunity to enhance income returns through active asset management.
For example, as part of our Westbridge Retail Centre Fund (Wagga Wagga) acquisition, we estimate that approximately 80% of the leased space is currently rented below market rates, providing potential to increase rental income through lease renewals to drive higher investment returns.
In addition, we see substantial opportunities in high-growth regional and metropolitan locations where supply is limited and appropriately zoned land for new LFR developments is scarce.
By strategically targeting these areas, we aim to capitalise on strong market fundamentals and our proactive management approach to deliver long-term value for our investors – placing ourselves at the forefront of the opportunities this sector presents.
Current Opportunity: Westbridge Retail Centre Fund
The Westbridge Retail Centre Fund provides an exciting opportunity to invest in a premium large format retail centre in the high-growth hub of Wagga Wagga, New South Wales.
The Centre is fully occupied and anchored by major national retailers including: Spotlight, Anaconda, Supercheap Auto, Petstock and Autobarn offering both a blue-chip income stream and value-add potential through active management strategies.
- Target Return: 13%* IRR (Internal Rate of Return)
- Investment Focus: Blend of income and value-add potential
- WALE: 6.75 years
- Investment Amount: Minimum initial investment of $100,000
- Eligibility: Open to wholesale investors