The property investment as rare as hen's teeth and ticking all the right boxes

I’m old enough to remember being dragged into the city as a kid, as part of the annual back-to-school tradition. Whilst I’m sure it was torture for my mum, it was also torture for my siblings and I – early start to beat the traffic, visiting multiple stores on opposite sides of the city, usually in blistering heat, no promise of a decent feed, and all of that only to come home, exhausted, and often with lacklustre purchases.

Quite simply, shopping never used to be much fun.

How times have changed. With the advent of ‘big box’ or large format retail (LFR) as it is known in Australia, any shopping experience has improved out of sight – ample parking, great facilities, incredible choice, and usually in a much more relaxed environment (pending childrens' attitudes, of course).

Population growth, coupled with our demand for convenience, has meant the value of these LFR centres has typically only increased over time. That’s why Centuria Capital was happy to proceed when presented with the opportunity to acquire the Logan Super Centre in Brisbane. Now, that same opportunity is available to investors via the Centuria Logan Super Centre Fund, which will be open to retail and wholesale investors from mid-March 2025.

I recently sat down with Bruce McCully, Centuria's Head of Retail, to discuss the details of the opportunity, why the asset is compelling, and why access to such assets is rare.

The broader landscape

The Australian property market has experienced significant shifts in recent years, largely due to fluctuating interest rates. As investors have adapted to these changes, the focus has increasingly turned to sectors with strong fundamentals and long-term growth potential.

According to McCully, who has almost 25 years of experience in retail property, interest rate trends have presented both challenges and opportunities. However, with recent signs of stabilisation and the potential for further cuts, investor sentiment is showing signs of recovery.

"It will be really interesting to see what happens to buyer sentiment in property over the next couple of years”, said McCully.

He adds that an uptick in sentiment will continue to make well-located, income-producing assets like large format retail (LFR) more attractive to investors looking for stability and growth.

The appeal of LFR

Unlike traditional shopping centres, LFR centres cater to home and lifestyle needs, attracting steady foot traffic and resilient tenant demand. LFR properties are evolving into more daily needs, health and lifestyle hubs that go beyond traditional shopping experiences.

"People are actually wanting to live around those services, especially the aging demographic. They’re keen to live close by where they don’t have to get in the car, so we see a bright future for land-rich, well-located LFR sites”, says McCully.

This shift enhances the long-term viability of LFR investments, as they integrate essential services, lifestyle amenities, and community engagement.

Population growth and retail demand

As noted above, Australia's strong population growth is a major driver of the retail property market. This trend has accelerated since COVID-19, creating increased demand for commercial spaces that serve a growing consumer base.

"Since COVID, population growth has been huge”, notes McCully, adding, “That's really where the biggest opportunity lies—density and the infrastructure that’s going to go with it”.

This is particularly evident in cities like Brisbane, which has seen a remarkable transformation.

"Brisbane’s amazing. The density that has gone into Brisbane over the last 10-15 years is unbelievable. Perth and Adelaide are a long way behind that”, said McCully.

With more people moving into urban areas, the need for well-located retail centres that cater to both essential and discretionary spending is increasing. According to Deep End Services, local average retail expenditure is anticipated to grow by 4.1% p.a., underpinned by strong population growth forecasts.

Currently, the Logan Super Centre has a Main Trade Area (MTA) population exceeding 413,000 and has grown 2.4% p.a. during the past eight years, which outpaces the Queensland average rate of 2.1%, with further growth expected in the future.

The Logan Super Centre

The Logan Super Centre near Brisbane is a prime retail property that benefits from a strategic location adjacent to IKEA, generating high levels of foot traffic.

"It’s an amazing location, next to IKEA, which drives massive traffic, and it actually feels like one complex because the car parks are combined”, notes McCully

The asset is fully leased with a strong mix of tenants, including major retailers such as Freedom, Fantastic Furniture, Spotlight and Anaconda – in fact, 93% of rental income is derived from ASX-listed and national retailers.

"Spotlight and Anaconda, two of the major tenants, just signed new five-year deals, which is great”, adds McCully.

The centre is what McCully described as ‘capital light’ and in great shape, meaning that little capital needs to be spent fixing the property. In fact, if capital is going to be injected, it will be to expand retail space or improve amenities, ultimately creating a better experience for customers.

Simple supply and demand is the other important factor that benefits the Logan Super Centre. When it comes to LFR, the population growth discussed above, coupled with limited new retail development, means existing assets are becoming increasingly valuable.

"Population is growing immensely, and construction of retail property has essentially stopped", says McCully. 

There will be no new large format developments in Queensland for at least three years—making this a great time to invest”, says McCully.

Further local economic fundamentals include ongoing infrastructure projects such as the expansion of the Logan Hospital and the construction associated with the 2032 Brisbane Olympics are all anticipated to add significant value and enable continued growth.

The nuts and bolts

Whilst the story sounds compelling, the financials need to stack up, along with the return for investors.

Regarding the former, Centuria is securing the Logan Super Centre, located at 3525-3537 Pacific Highway, Slacks Creek, Queensland, at a circa 22% discount to replacement cost.

"We are buying this at over 7% yield, which is pretty compelling”, notes McCully, adding that “There’s real value here”. Previous sales of similar assets in Queensland have been completed on yields less than 7%, according to McCully.

The site houses 22 large format retailers, two speciality stores, a kiosk, car wash pad and more than 600 on-grade car parks. The property delivers a 3.4-year WALE (by income) and 100% occupancy.

What’s in it for investors?

Investors are being asked to commit a minimum of $50,000 to the Fund, which offers structured terms aiming for fund income stability and providing the potential for capital growth. 

"It’s an initial five-year fund term, single asset fund, with forecast distributions of 8% per annum in FY25 and FY26 paid as monthly distributions”, says McCully.

In addition to the forecast income, McCully notes investors can also benefit from significant tax advantages.

"It’s 100% tax-deferred income for Australian residents for FY 25 and FY 26”, says McCully.

These incentives enhance the after-tax returns, making the investment even more appealing, although McCully already sees it as a compelling opportunity.

“Given the purchase price, the fact that the site is capital light, and there is room for improvements, we expect capital growth and believe that there will be a pretty good return at the end of the Fund”, said McCully. 

Find out more about investing in the Centuria Logan Super Centre Fund.