• Sales volume in Melbourne’s retail property market has reached $1.4 billion in 2022;
• Yields have stabilised for the majority of retail asset types as investors remained cautious in the uncertainty of the behaviour of consumers post-pandemic;
• Online retail trade in Australia continues to gradually take a larger share of overall spending, making up 10% of total retail sales with $44 billion spent online over the past 12 months;

Retail Market Summary

Over 2022, annual retail trade in Victoria grew by 13%, triple the 10-year trade and has now outperformed the national average since September 2021. Online retail trade in Australia continues to gradually take a larger share of overall spending with Australian consumers spending approximately $44 billion online over the past 12 months. Transactions across Melbourne’s retail property market reached $1.4 billion over the past year, below the 10-year average, with investors still cautious.

Sales Volume/Yields

Urban Property Australia research has revealed that total transactions in the Melbourne retail property market reached $1.3 billion in 2022, below the 10-year average.

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 January 2023, yields of CBD assets eased impacted by the soft tourism sector coupled with the slower than expected trend of employees returning back to CBD offices. Looking ahead, Urban Property Australia expects yields of retail assets will expand further in 2023 in line with increased borrowing costs.

Melbourne Retail Transactions

Demand

Retail trade in Victoria continues to outperform the national average as consumers regained their freedoms. Over 2022, annual retail trade in Victoria grew by 13%, triple the 10-year trade average of 3.8%. In comparison, Australian annual retail trade grew by 4% over 2022. Victoria has now outperformed the national average since September 2021.

Most discretionary spending industries experienced strong rises once again as consumer cautiousness lessened, leading to an increase in mobility and improved business conditions with clothing and footwear sales now 11% higher than levels last year whereas retail trade of supermarkets increased by 3.4%.

Online retail trade in Australia continues to gradually take a larger share of overall spending. According to the ABS, as at December 2022, online sales made up 10% of total retail sales with Australian online sales with Australian consumers spending approximately $44 billion online over the past 12 months.

Victoria 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 (11%) and Lygon Street, Carlton (15%), albeit there is some gradual improvement in the latter.

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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