Large format retail (LFR) continues to stand out as an investment class across Australia's commercial market, with strong yields compared to other assets despite broader market challenges.

According to Ray White, LFR assets are recording average yields of 6.5 per cent in 2024, outperforming CBD office properties at 6 per cent, regional shopping centres at 5.5 per cent, and industrial warehousing at 5.4 per cent. This yield premium makes these assets particularly attractive in today's high interest rate environment.

The sector's strong performance is closely tied to housing market activity, with demand naturally increasing for furniture, white goods, and hardware whenever people move homes or renovate. This creates a consistent customer base for major tenants like Bunnings, Officeworks, Harvey Norman, and Amart Furniture.

Construction efficiencies further enhance the investment appeal of LFR properties. These assets typically feature lower construction costs per square metre compared to enclosed shopping centres due to simplified building designs and standardised construction methods.

Investment volumes have fluctuated significantly, with 2024 achieving approximately $810 million in transactions, well below the peak annual turnover of $3.7 billion reached in 2022. However, the market has shown encouraging signs of recovery over the past 12 months, with early 2025 transactions approaching $150 million.

A distinct "flight to quality" trend has emerged in the sector, with investors prioritising premium assets featuring strong anchor tenants, strategic locations, and modern facilities. These high-quality properties are increasingly tightly held by institutional investors and private investor groups who recognise their long-term value.

The sector's positive outlook is strengthened by a growing imbalance between population growth and retail space development. While Australia's population has grown approximately 15 per cent over the past decade, the retail space per capita ratio has declined from approximately 2.3 sqm/person in 2015 to under 2.1 sqm/person today.

New supply remains severely limited by the scarcity of appropriately zoned land suitable for LFR development, particularly in metropolitan areas where demand is highest. Restrictive planning regulations and competition for land from other uses have further constrained the development pipeline.

The sector is also evolving to meet changing retail dynamics. Retailers are increasingly diversifying their tenant mix to include more lifestyle and non-traditional retailers, creating a new hybrid category that blends traditional LFR with experiential shopping elements.