• More than $1.25 billion transacted in the Melbourne retail property market over 2024 with transactional activity boosted by a number of larger transactions with five shopping centre sales above $100 million recorded;
• Increasingly more retail categories recorded contractions of retail sales over the year as consumers struggled to keep pace with the rising cost of living despite strong population growth and inflation;
• Yields have softened over the year, albeit expanding more modestly in the second half of the year, with yields expanding by between 5 and 25 basis points over the past 12 months.

Retail Market Summary

More than $1.25 billion transacted in the Melbourne retail property market over 2024 with transactional activity boosted by a number of larger transactions with five shopping centre sales above $100 million recorded in the year. Impacted by the increased cost of living, retail trade in Victoria eased through the past 12 months, albeit the state continues to outperform the national average growth rate. Online retail trade in Australia continues to gradually take a larger share of overall spending with online sales making up 13% of total retail sales in Australia.

Sales Volume/Yields

Urban Property Australia research recorded more than $1.25 billion transacted in the Melbourne retail property market over 2024. While transactional activity remains below the historical average, the sales volume of 2024 was boosted by a number of larger transactions with five shopping centre sales above $100 million recorded in 2024. Yields have softened over the year, albeit expanding more modestly in the second half of the year, with yields expanding by between 5 and 25 basis points over the past 12 months. Urban Property Australia expects yields of retail assets are close to stabilising having decompressed over the past three years.

Melbourne Retail Transactions

Demand

Impacted by the increased cost of living, retail trade in Victoria eased through the 12 months to November 2024, albeit the state continues to outperform the national average growth rate. Over the year to November 2024, annual retail trade in Victoria grew by 2.1%, well below its 10-year average of 5.1%. In comparison, Australian annual retail trade grew by 2% over the year, also below its 10-year average too.

Increasingly more retail categories recorded contractions of retail sales over the year as consumers struggled to keep pace with the rising cost of living despite strong population growth and inflation. Interestingly, cosmetics outpaced all other categories, recording annual growth of 7.5% with trade still solid in cafes and restaurants with growth of 5.3%.Food retails sales grew at 2% over the year and accounts for 37% of all retail sales. In contrast, household goods (such as furniture and electrical goods) retail trade contracted over the year.

Online retail trade in Australia continues to gradually take a larger share of overall spending. According to the ABS, as at November 2024, online sales made up 13% of total retail sales with Australian online sales with Australian consumers spending approximately $49 billion online over the past 12 months.

Rental growth was mixed across Victoria’s retail shopping centre assets over 2024 with rents largely stable with the exception of Melbourne CBD assets which are now 2% lower than levels recorded 12 months ago.

Victorian Vs Australian Retail Trade

Retail Strips

Total vacancy of Melbourne’s prime retail strips fell over the past 12 months with 9% of all shops vacant. The vacancy levels of Fitzroy Street, St Kilda is the highest at 15% with elevated vacancy rates at Chapel Street, South Yarra (9%), Glenferrie Road, Malvern (8%) and Lygon Street, Carlton (11%).

The food and beverage sector continued to grow its presence across the strips, growing in the majority of the precincts however a number of fashion retailers have vacated the prominent strips, impacted by store rationalisation and the growing influence of e-commerce.

Several strips are benefiting from nearby developments, increasing the local population which have increased foot traffic to the precincts leading to increased tenant demand.

With many strips having been re-discovered by locals now working from home, some retailers have successfully adjusted to the changing consumer trends. The elevated vacancy levels and rationalisation of some retailers has resulted in rental levels easing with some landlords also offering flexible lease terms and incentives to attract new occupiers.

Now that more normalised spending patterns have emerged, looking forward, Urban Property Australia expect to see a broader range of tenants seeking exposure in the retail strips market.

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