• Retail trade increased by 3.0% in Victoria, higher than the 1.7% growth recorded of mid-2024, although still well below its 10-year average of 5.0% and continues to outperform the Australian average;
• More than $500 million was transacted in the Melbourne retail property market over the first quarter of 2025 boosted by the half-share sale of Northland shopping centre for $385 million, Victoria’s biggest retail transaction in seven years;
• Rental growth was mixed across Victoria’s retail shopping centre assets with large format centres and neighbourhood shopping centres outperforming other Victorian retail assets.

Retail Market Summary

Seemingly, retail sales have bottomed with signs that the pressures on household budgets have begun to ease. Over the year to February 2025, retail trade increased by 3.0% in Victoria, higher than the 1.7% growth recorded in May 2024, although still well below its 10-year average of 5.0%. In comparison, Australian annual retail trade grew by 2.8% over the year to February 2025, also below its 10-year average. More than $500 million of Victorian retail property assets has transacted in the first quarter of 2025 – the strongest start of sales volume for three years.

Sales Volume/Yields

Urban Property Australia research recorded more than $500 million transacted in the Melbourne retail property market over the first quarter of 2025 – the strongest start of sales volume for three years. While transactional activity remains below the historical average, the sales volume of 2025 is on track to be the highest annual volume of retail property sales since 2021. This year’s volume of retail property sales has been boosted by the sale of a 50% share of the Northland shopping centre for $385 million, Victoria’s biggest retail transaction in seven years. Buoyed by the resilience of the sector, yields have now stabilised, indicating the bottom of the cycle valuations cycle has likely passed. Urban Property Australia expects yields of retail assets have peaked with the positive rental growth outlook boosting investor appetites.

Melbourne Retail Transactions

Average Melbourne Retail Yields

Demand

Seemingly, retail sales have bottomed with signs that the pressures on household budgets have begun to ease. Over the year to February 2025, retail trade increased by 3.0% in Victoria, higher than the 1.7% growth recorded in May 2024, although still well below its 10-year average of 5.0%. In comparison, Australian annual retail trade grew by 2.8% over the year to February 2025, also below its 10-year average.

Improving retail sales has been driven by both easing inflation and cost-of-living measures such as temporary energy rebates. Following the US tariffs, additional interest rates are now projected in Australia which should lead to an improvement in consumer spending, providing a more supportive environment for retailers in 2025.

Similarly, increasingly more retail categories are also recovering with only a few recording contractions of retail sales over the year to March 2025. Interestingly, cosmetics outpaced all other categories, recording annual growth of 9.3% with trade still solid in cafes and restaurants with growth of 5.2%.Food retail sales grew at 2.7% over the year and accounts for 37% of all retail sales. In contrast, household goods (such as furniture and electrical goods) retail trade only recorded growth of 0.1% over the year – impacted by the subdued housing sector.

Online retail trade in Australia continues to gradually take a larger share of overall spending. According to the ABS, as at February 2025, online sales made up 11% of total retail sales with Australian online sales with Australian consumers spending approximately $50.6 billion online over the past 12 months.

Rental growth was mixed across Victoria’s retail shopping centre assets over the year to March 2025 with large format centres and neighbourhood shopping centres outperforming other Victorian retail assets with Melbourne CBD retail rents still experiencing downward pressure.

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%) and Lygon Street, Carlton (11%). Elsewhere, the vacancy rate for Church Street, Brighton and High Street, Armadale remain very low with both strips recording vacancy rates lower than 3%.

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. With the workforce continuing to spend time working remotely, Urban Property Australia has witnessed increased demand from recreational tenants such as fitness and health businesses for locations in Melbourne’s prime strips as the local residents continue to change their spending patterns.

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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