• Total transactions in the Melbourne retail property market recorded in 2023 exceeded $1.4 billion, 9% higher than levels recorded in the previous year;
• Retail trade in Victoria eased through 2023 as consumer confidence weakened with annual retail trade in Victoria increasing by 3.5%, its lowest rate since 2021;
• Yields softened across all retail asset classes over the year with yields expanding by between 25 and 75 basis points with further easing projected over the next six months.

Retail Market Summary

While retail trade in Victoria continues to outperform the national average the annual increase in sales has eased through 2023 as consumer confidence weakens and the increased cost of living has adversely impacted retail trade. Over 2023, annual retail trade in Victoria grew by 3.5%, its lowest rate since 2021. Online retail trade in Australia continues to gradually take a larger share of overall spending accounting for 13% of total retail trade with Australian consumers spending approximately $45 billion online over the past 12 months. Total transactions in the Melbourne retail property market recorded in 2023 exceeded $1.4 billion, 9% higher than levels recorded in the previous year.

Sales Volume/Yields

Urban Property Australia research recorded more than $1.4 billion transacted in the Melbourne retail property market over 2023, 9% higher than levels recorded in the previous year. Yields softened across all retail asset classes over the year with yields expanding by between 25 and 75 basis points. Urban Property Australia expects yields of retail assets will expand further over the next six months in line with increased borrowing costs and slowing retail turnover conditions.

Melbourne Retail Transactions

Demand

While retail trade in Victoria continues to outperform the national average the annual increase in sales has eased through 2023 as consumer confidence weakens and the increased cost of living has adversely impacted retail trade. Over 2023, annual retail trade in Victoria grew by 3.5%, its lowest rate since 2021 and well below its 10-year average of 5.3%. In comparison, Australian annual retail trade grew by 5.3% over the year, also below its 10-year average.

Increasingly retail categories recorded sales contractions over the year as consumers struggled to keep pace with the rising cost of living. Retail trade growth remains strong in cafes and restaurants continues to outpace all other sectors with 20% of growth recorded with food retails sales also solid at 6%. In contrast, household goods, electrical 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 2023, online sales made up 13% of total retail sales with Australian online sales with Australian consumers spending approximately $45 billion online over the past 12 months.

Rental growth across most of Victoria’s retail shopping centre assets over 2023 was modest however rental levels in the Melbourne CBD retail market continued to decline, now 10% lower than levels recorded 12 months ago.

Victorian Vs Australian Retail Trade

Retail Strips

Total vacancy of Melbourne’s prime retail strips has fallen from its all-time highs with around 12% of all shops vacant. The vacancy levels of Fitzroy Street, St Kilda is the highest at 28% with elevated vacancy rates at Chapel Street, South Yarra (12%), Glenferrie Road, Malvern (15%) and Lygon Street, Carlton (13%), 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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