
McGees 2025 Forecast – Large Format Retail
Higher levels of demand for new and existing large format space across Adelaide and South Australia will come from all parts of the sector in 2025, according to McGees Property’s 2025 Large Format Retail Forecast.
“Retailers are more optimistic ahead of anticipated interest rate cuts and improving consumer sentiment in 2025. Spending is likely to increase in each part of the large format sector and we’ll see an uplift in activity from tenants as a result,” said McGees Director – Large Format Retail, Dallas Sears.
“Tenants are continuing to expand and rightsize into spaces. We’re seeing new deals negotiated with and enquiries coming from a range of different users – including furniture, electrical and white goods, hardware, sports and recreation, fast food, and pet supplies,” she said.
“The fact that furniture retailers are looking for new sites and are prominent in enquiry is a good sign. They’re usually the ‘canary in the coal mine’ – when a market is difficult they’re the first to stop looking for new sites, and the last to get into a market when it turns to the positive.”
She said there is ongoing take-up of space in new developments, with retailers looking past increases in rents resulting from the rise in construction costs.
“Our pipeline for 2025 comprises quite a bit of new development for new centres throughout Adelaide, including regional areas,” Sears said.
“New tenants will be coming into an area to go into new developments and a catchment that they don’t currently service. There are some impressive developments in areas that have high tenant demand and there is great interest in these locations.”
McGees is reporting strong early interest in the 12,000-plus sqm of large format retail space at BWP Trust’s former Bunnings Warehouse site redevelopment in the southern growth corridor location of Noarlunga Centre.
The agency is also set to market 10,000sqm of versatile space for lease at Tudor Vale Shopping Centre in Munno Para West, in a booming part of Adelaide’s northern growth corridor, and next to the Tudor Vale and opposite the Brookmont Estate
master-planned communities which together will be home to thousands of new residents in the coming years.
In the Riverland regional centre of Berri, McGees has also generated strong interest in some 2,000sqm of brand-new large-format retail space at Riverland Central Plaza, which will serve a captive catchment of nearly 30,000 people.
“We’re seeing a number of tenants moving around to other properties new and existing to ensure they are in the right size and right location for their brand,” Sears added.
“That’s meant there’s a lot of work back-filling tenants who have relocated to newer or right-sized tenancies.”
Lower interest rates to spur activity
Sears said the large format retail market, which has been a standout component of the property sector since COVID, would see more movement this year.
“Interest rates are expected to come down in 2025, and consumer sentiment is improving, which will be to the benefit of retailers across the large format sector”
The Reserve Bank of Australia (RBA) has held interest rates at 4.35% November 2022. Most economists are forecasting rates to be lowered by at least 0.25 basis points in 2025, with all four major banks expecting that in the first half of the year. Deloitte is forecasting real retail turnover to lift from -0.3% in 2024 to 2.1% in 2025 and then again to 2.5% in 2026 as interest rates come down and consumer sentiment improves1.
“We’re already seeing retailers looking to get in ahead of the curve and secure great positions and spaces ahead of the anticipated increase in retail spending,” Sears said.
The RBA board’s first interest rate meeting for 2025 will be held over 17 and 18 February.
Sears also noted the South Australian economy has outperformed compared to other states and territories in recent times, according to CommSec2.
She said the large format retail sector has shown remarkable resilience in recent years, outperforming throughout a pandemic, during a time when people had built up higher levels of savings, and to the current day despite highly publicised cost-of- living headwinds.
“As a market overall, we’ve seen there is always some kind of retailer activity. Different retailers do better depending on the economy and how much disposable income people have. When people have higher disposable income they tend to spend more on the items that aren’t replaced often, like large furniture, new beds, white goods, and so on – they go and buy the niceties that they generally can’t afford otherwise.
“When people have less money they spend more on smaller items like soft furnishings, plants, and hardware – often for small jobs to rejuvenate and refresh the home without having to spend a huge amount of money on a major renovation.
“People also spend more on more affordable recreation activities like camping, fishing, sports, and working on their own cars if they can, and in second-hand stores – thrift shopping is becoming more and more popular due to sustainability and pricing.
“Savings that had built up during COVID have slowly eroded, however, there’s still money there for discretionary spend, and tenants are optimistic that interest rate cuts are on the way to put more money back into spenders’ pockets, which will flow through to all parts of the large format sector.
“Ultimately, retailers who engage well with their customer base, understand what they want and then provide excellent service will be more likely to succeed,” she said.
LFR offers stable investment prospects
McGees Partner Craig Feely said that in South Australia, most of the buyers of large format retail properties are private individuals or syndicate groups.
“Most large format retail developments are seen as very stable investments with retailers staying in their locations for many years,” he said.
“Meanwhile, the increased activity from tenants is creating competitive conditions for vacant spaces, both new and existing.”
He added that new developments are very attractive to investors as they have the additional benefit of depreciation write downs.
1 https://www.deloitte.com/au/en/about/press-room/retail-forecasts.html