Hardware retailers’ expansion battle may put pressure on commercial rents, expert warns

Commercial property and land prices may face some upwards pressure as part of an expansion war currently being fought between giant retailers searching for unusually large warehouse-size blocks, one expert warns.

The comments come as Bunning’s is planning to open 18 new stores in New South Wales ahead of Woolworths’ deal with Lowe’s to open new hardware locations.

But the plans also come as more retailers are looking for unusually large blocks for expansion. Just recently Swedish DIY chain IKEA announced it will build two massive homemaker centres in conjunction with Harvey Norman, while American bulk-goods retailer Costco has admitted it is also having trouble finding locations for its warehouse-sized stores.

DTZ Research director David Green-Morgan says the trend towards larger stores could indeed push up commercial property prices.

“Over the longer term, there is a trend towards increased rental and value associated with these developments. The worry is, is there too much of it? Will we be oversupplied by these types of facilities?”

“There is a concern there, but I think with Australia’s increasing population I’m not sure if it’s going to be too much of a concern if it is met out that way.”

Green-Morgan says he has noticed a trend towards these larger warehouse-size stores, saying most companies are now looking outwards of city centres to find massive areas for cheaper prices.

“This is generally why you don’t find these stores in the city centres. They are further away and tend to be in more retail parks. It’s very much an American model, with these big-box retailers like Costco. They all seem to congregate around good transport, because people need cars and so on to take the products away.”

He notes that as Bunnings prepares to open its 18 new stores across New South Wales ahead of Woolworths’ expansion, more competition will help the commercial property sector.

“Certainly it should be good news for the owners of these big-box retail sites which have probably struggled the most during the financial crisis. There’s a lot more competition now, and from a consumer point of view it’s very good as well.”

“It’s also more to do with land prices than property prices, because it seems Bunnings will buy more land than existing property. However, these facilities are fairly easy to build.”

Bunnings said yesterday it will pump $600 million into 18 new facilities in locations including Alexandria, Balgowlah, Batemans Bay, Castle Hill, West Gosford, Rouse Hill, Tamworth, Marsden Park, Wallsend, Smithfield and East Gardens.

But while rents may be at risk of increasing near these areas, Retail Doctor chief executive Brian Walker says the increased foot traffic gives these companies an advantage. He recommends these businesses examine what the big-box retailers lack, and then play off that point of difference.

“They need to look at what these retailers don’t do well, and then emphasis that core point of difference. For example, I know of a Harris Scarfe nearby which opened recently, and a nearby coffee shop-fruit shop has instead reduced his range of fruit, and has emphasised his coffee.”

“Their foot traffic has increased, and their market has changed because of that foot traffic. You need to differentiate yourself and then cater to that new market.”