LFR offers regular returns with strong tenants and long leases.

When you think about retail, boutique high street shops might be the first thing that comes to mind. But at the other end of the spectrum is large format retail: huge spaces that provide thousands of items in no-frills buildings – think Mitre 10 Mega and Woolworths, for instance.

Historically, investing in commercial property has been a dependable source of returns for those committed to a long-term investment strategy. However, in recent years, the economic environment in New Zealand saw cash and term deposits returning around 6%, with commercial real estate investment funds trailing slightly behind. But things are changing. Recent cuts to the Official Cash Rate (OCR) have slowed returns on term deposits and cash investments.

“You’re seeing deposits fall off really sharply, so you’re lucky to get a term deposit paying more than 5%,” says Matt McHardy, General Manager Investor Relationships at PMG Funds. “Large format retail offers a unique opportunity, backed by businesses that typically provide essential products. This sector is increasingly valued for its dependable, long-term potential, offering stability and regular returns, along with the prospect for gradual growth in value over time – benefits that traditional term deposits may struggle to provide in the future.”

Big brands hold steady during tough times

While retail has struggled over the past few years, two areas where people have kept spending are on groceries and on their homes. ‘Big box’ tenants are typically well-established national and multi-national brands with long-term leases, which provide reliable rental income and help minimise vacancy risk. Household names like Mitre 10 and Kmart have recorded significant sales growth since 2018: 110% and 106% growth respectively*. Brands like these are an integral part of everyday Kiwi lives, and they are incredibly resilient in the face of inflation and recessions.

“These are simple businesses which people understand,” says McHardy. “Kiwis recognise these brands and resonate with them because they spend time and money there. We all know that these companies are well resourced and ready to ride out economic cycles – they know how to position themselves for success.”

Large format retail is structured to provide certainty for all participants: shoppers can rely on their favourite big brands; those commercial tenants have security of tenure; their landlords get the rent paid every month; and investors achieve regular returns. This makes LFR ideal for setting up a reliable long-term income stream that can withstand a considerable amount of volatility.

“Our clients tell us they want certainty around long-term income, which lets them budget effectively, especially in retirement,” says McHardy. “Structured rent rises, long-term leases with great tenants, and, ultimately, capital gains – all those factors contribute to making investing in large format retail an appealing option for investors in 2025 and beyond.”

Capitalising on growth in Christchurch

A new LFR development is underway which will create a new Mitre 10 Mega store in Prestons, Christchurch. The Kiwi family that owns Mitre 10 in Ferrymead have provided the land, and a new branch of Mitre 10 will open once the development is complete. PMG Funds is currently raising wholesale capital to purchase the land and the building upon completion. Experienced builder Tuatara Construction is currently building the premises with a target completion date of November 2025.

The new store will capture a large and growing cohort of Kiwis living north of the Christchurch CBD and will be a welcome addition to a fast-growing selection of other large retailers moving into the area.

“Christchurch is the hot place to be right now,” McHardy says. “There’s a real vibe. From the quality of the infrastructure to the hospitality hub to the outdoor activities – and on top of that the affordable housing – it presents huge opportunities for young people and the future for Christchurch is looking positive.”

Mitre 10 will be on a 20-year lease in its new building, with two 10-year rights of renewal after that. The development itself will have all the features that Kiwi shoppers most enjoy about the major DIY outlets.

“Large format retail offers different ways to shop, from click and collect to self-service,” explains McHardy. “But core to the physical stores is providing an experience. Mitre 10 Mega stores now have cafes and playgrounds inside, so they work brilliantly for mum and dad. They can have a cup of coffee while the kids play, then they can all try out the outdoor couches, and everything undercover so it doesn’t matter what the weather is doing. Mitre 10 has also built a reputation for having knowledgeable employees, which is brilliant because DIY sector shoppers want to talk to someone, touch all the door handles, look at all the paint swatches, and generally interact with the products when they’re spending large sums of money.”

PMG is currently seeking wholesale investors to be involved in funding the project, which lets them invest in a sector that is rarely accessible to the public. 

“Getting access to LFR for most people is really difficult, particularly for expensive assets, and this asset will be worth $35 million once completed,” McHardy says. “This is a very appealing offer and we’ve already had a lot of indicative interest, meaning we may close fund raising soon. I think large format retail will definitely be popular in 2025 – not too fancy, just a proven, reliable and consistent sector.”

To find out more about the wholesale opportunity, visit: pmgfunds.co.nz/invest

  • Intelligent Investment, Large Format Retail New Zealand, CBRE, February 2024

Disclaimer: The information in this article is of a general nature only and any views expressed are those of the author. It is not financial advice and does not take any person’s individual circumstances or financial situation into account. There are risks to every investment, and investment returns are never guaranteed. Investors should always consider obtaining their own tax, legal, and financial advice before making any investment decision.

The information above about PMG’s Christchurch investment opportunity is not an offer of financial products. This investment opportunity is only available to “wholesale investors” under the Financial

Markets Conduct Act 2013. Prospective investors will be required to provide documentation and evidence that they qualify as a wholesale investor. Read the full disclaimer on this investment opportunity at pmgfunds.co.nz/invest.

  • Hero: Image is an indication only and includes renders