Q1 2022 – Melbourne Retail Market

  • Yields have stabilised for the majority of retail asset types as investors remained cautious in the uncertainty of the behaviour of consumers post-pandemic;
  • Retail trade has recovered strongly in Victoria and is now growing faster than the national average with Victoria increasing by 9.0%, more than double the 10-year trade average of 3.8;
  • The elevated vacancy levels of Melbourne retail strips 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.

Retail Market Summary

Lower COVID-19 case numbers in February, alongside the further easing of restrictions over the month, saw consumer spending return to similar behaviour seen previously. Retail trade has recovered strongly in Victoria and is now growing faster than the national average. Over the year to February 2022, annual retail trade in Victoria grew by 9.0%, more than double the 10-year trade average of 3.8%. In comparison, Australian annual retail trade grew by 5.3% as at February 2022.

Sales Volume / Yields

Average Melbourne Retail Yields

Urban Property Australia research has revealed that total transactions in the Melbourne retail property market reached $2.1 billion in 2021, its highest level since 2018. Sales volume in 2022 to date has been relatively subdued with only $110 million transacted this year.

Yields have stabilised for the majority of retail asset types as investors remained cautious in the uncertainty of the behaviour of consumers post-pandemic. Over the year to March 2022, yields of Neighbourhood shopping centres have tightened as investors focused on non-discretionary spending in assets located in residential hubs. Yields for CBD and Regional shopping centres expanded through the past 12 months with subdued investor demand.

Demand

Lower COVID-19 case numbers in February, alongside the further easing of restrictions over the month, saw consumer spending return to similar behaviour seen previously as Victoria came out of a COVID-19 wave.

Retail trade has recovered strongly in Victoria and is now growing faster than the national average. Over the year to February 2022, annual retail trade in Victoria grew by 9.0%, more than double the 10-year trade average of 3.8%. In comparison, Australian annual retail trade grew by 5.3% as at February 2022.

Most discretionary spending industries experienced strong rises once again as consumer cautiousness lessened, leading to an increase in mobility and improved business conditions with retail trade for cafes and restaurants 41% higher than levels last year whereas retail trade of households increased by 4.3%.

Online retail trade in Australia continues to gradually take a larger share of overall spending. According to the ABS, as at February 2022, online sales made up 10% of total retail sales with Australian online sales with Australian consumers spending approximately $40 billion online over the past 12 months.

Victorian Vs Australian Retail Trade

Retail Strips

Total vacancy of Melbourne’s prime retail strips has risen to all-time highs with around 13% of all shops vacant. The vacancy levels of Bridge Road, Richmond is the highest at 20% with elevated vacancy rates at Chapel Street, South Yarra (19%), Fitzroy Street, St Kilda (13%) and Lygon Street, Carlton (20%).

The food and beverage sector increased 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.

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.

The retail sector has improved at a remarkable pace and well beyond any forecasts. Now that more normalised spending patterns have emerged and if the economic recovery continues to gather pace, looking forward, Urban Property Australia expect to see a stabilisation of service-based consumption and a shift towards goods-based consumption moving forward which will benefit the retail strips markets.

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