The six signs of a potentially lucrative retail investment

Investing in retail property can be highly rewarding when approached with strategic insight.

I personally purchased my first commercial property in 2015, which happened to be a retail property with two tenants. Since then, I have purchased many other retail investments, including neighbourhood shopping centres, drive throughs and large format retail.

I keep coming back to retail as I believe in the security and the upside a good quality retail investment can give an investor.

Retail has been performing strongly in 2024.

A recent JLL report identified a growing value proposition for retail property that is resonating with maiden buyers and institutional sources of capital. 

The report noted that shopping centre performance has continued to strengthen, which is coming through clearly in the operational metrics.

Re-leasing spreads are now positive across the sector and vacancy rates are trending down. Occupancy is supported by very low levels of retailer insolvencies since 2020 and a rationalisation of retail store networks in the lead up to 2020.

With such an investment-positive climate prevailing, here are the top indicators to consider for a lucrative investment in the retail commercial market.

Location, foot traffic and road traffic

Prime locations with high foot traffic are essential.

Properties situated in bustling commercial districts or near major transport hubs attract more customers, ensuring steady rental income and potential for value appreciation.

Road exposure is also another great benefit for a retail business wanting exposure for their business.

To put things into perspective how important road exposure can be, think about Standard Static Billboards. These typically range from $2,000 to $5,000 per month in metropolitan areas like Melbourne and Sydney.

In high-traffic areas or prime locations, costs can escalate to between $6,000 and $40,000 per month​.

Tenant quality

Assess the quality and stability of potential tenants.

Established brands and long-term leases are positive indicators, as they provide reliability and reduce vacancy risks.

The reputation and financial health of tenants significantly impact the property’s income stability.

Lease terms

Favourable lease terms are essential.

Long-term leases with regular rent escalations offer security and predictability in income streams.

Additionally, consider properties with triple net leases, where tenants cover maintenance, insurance, and property taxes, ultimately enhancing net returns.

Quality fit-outs

A commercial fit-out significantly enhances the value of a property by making it more appealing to potential tenants, thereby reducing vacancy rates, and ensuring steady rental income.

It allows landlords to command higher rents due to the improved functionality and aesthetics that meet modern business requirements. Additionally, a well-executed fit-out can increase the overall market value of the property, providing a solid return on investment over time.

Market trends and economic indicators

Stay informed about market trends and economic indicators.

Rising consumer spending, low vacancy rates, and economic growth in the area signal a healthy retail market. Monitor local developments and infrastructure projects that can boost property value.

Demographics and competition

Analyse the local demographics and competitive landscape. Areas with growing populations and higher disposable incomes are promising.

Assess the competition to ensure your property can attract and retain tenants without oversaturation.