in the first quarter of this year – much less than in the previous quarter. And most of this new supply was in Queensland and Western Australia. New South Wales, which faces heavier regulation in the large format environment than other states, remains constrained for land and is seen as having the most pent-up demand for space. “Just over 250,000sqm of supply is forecast to be completed in 2016, in line with the long-term average, but down 11 per cent on 2015,” CBRE senior research manager, Australia, Danny Lee, who authored the report, told Inside Retail Weekly. As a result, Chris Parry, CBRE head of large format retail, Australia, said vacancies in prime precincts, particularly in NSW and Victoria, were at an all-time low – a situation that could lead to increased rents in 2016. “Where there is a vacancy, typically it’s been available for a while and the space isn’t suitable for various reasons,” Parry explained. “A and B rate stock has been used up pretty well and we are screaming out for new supply. “Developments are currently under construction in Victoria. There are a couple of repositionings of single tenancies in Queensland and some development in Western Australia. There are definitely a lot more developers in our market than there was three or four months ago. And it seems like the appetite for funding and development is also quite liquid at the moment, which is good.” Lee expected retailers to adopt different strategies in response to the tight supply pipeline. “Firstly, they will continue to build traditional large format retail spaces in areas where they can do this, for example, west of Sydney. But they will also look for new opportunities in highly populated inner city areas, and this may be in smaller premises or in places previously used for office space or industrial warehousing,” he said. “They may want to stock different things in the smaller format stores – for example, items that are more useful for apartments. Someone living in an apartment may not necessarily need a lawnmower, but may need white goods or a clothes wrack.” Large format retailers look to new leasing strategies According to Lee, Bunnings leads the way with a smaller format strategy, but others may also follow. Ikea also has smaller format outlets, for example, in Wollongong and Newcastle, but for a different reason – the catchments of these areas are not large enough to support a traditional Ikea store, which typically requires one million people within a 20-minute drive time. “The smaller Ikea outlets don’t stock everything, but have displays,” explained Lee. “Customers can pick smaller stock up from these outlets, but bigger and bulkier items will be delivered to them.” Parry also cited Fantastic Furniture as another example of a retailer diversifying with smaller floor plates, with the mid-2015 opening of the Fantastic furniture express concept in Sydney’s SupaCentre Moore Park. “The entry of large format retailers into new markets and formats has so far been met with positive feedback, with consumers able to access products and brands in a more convenient and condensed manner,” he said. “Over the coming year, we expect this trend to continue, with more non-traditional, smaller retail spaces to be occupied by large format retailers.” With a well-documented dearth in available large format retail properties, Philippa Kelly, CEO of the Large Format Retail Association, suggests that retailers look to use their online presence as a value-add in association with the physical stores they currently have. “Online is not only a great sales tool, but you can also educate and provide information to the customer and it sits neatly with a condensed floorspace,” Kelly said. Kelly noted that a large supply of large format retail property will be available in the near future as Woolworths exits its failed Masters Home Improvement stores. However, competition for those leases is already being hotly contested behind closed doors. “[There’s] a large amount of space to come online – [it] has the potential to create fantastic opportunities for other retailers in the LFR space.” Foreign ‘category killers’ Another trend pinpointed by the CBRE report was the growing interest from foreign brands looking to enter the Australian market – a development that could create more competition for local brands and further boost demand for floor space in a low vacancy market. French sporting goods provider, Decathlon, has just launched its Down Under presence via a localised e-commerce website and many more are expected to follow, with Australia’s high consumption per capita considered an attractive lure for them. “Retailers including TJ Maxx and Mr Price Home have shown genuine interest in establishing in the Australian market in the short to medium-term,” Parry said. Foreign interest has been increasingly buoyant over the past 12 to 18 months, particularly along the eastern seaboard, and it has been coming from bona fide ‘category killers’ in their respective markets. According to Lee, this interest was being spurred by a very low penetration rate of foreign brands in Australia, compared to other developed markets, which meant there was less competition between the foreign brands here. Foreign brands also appeal to younger demographics. Lee’s research revealed that half of those aged 20 to 35 wanted a foreign brand in their shopping centre, compared to only 20 per cent of those aged 50 to 65. Undoubtedly the variety and diversity offered by these international brands will be welcomed as a fresh change by consumers – if the foreign brands can find appropriate floor space. Access exclusive analysis, locked news and reports with Inside Retail Weekly. Subscribe today and get our premium print publication delivered to your door every week.