• Victorian household spending increased by 4.9%, its highest annual growth rate since September 2023 with both discretionary and non-discretionary spending increasing;
• Almost $950 million of sales in the Melbourne retail property market in 2025, the lowest annual transactional volume in 15 years;
• With limited opportunity to invest but increasing investor appetite from both private and institutions, shopping centre yields have compressed over the year.

Retail Market Summary

Despite easing employment growth, nation-leading population growth continues to underpin Victorian household spending. Over the year to November 2025, Victorian household spending increased by 4.9%, its highest annual growth rate since September 2023. Retailer demand remains subdued for most discretionary forms of retail, with national retailers focusing on optimal locations rather than volume in expansion strategies. Although investors are actively seeking investment opportunities in the sector considering the retail sector’s performance, sales activity in Melbourne was subdued. Almost $950 million of sales in the Melbourne retail property market in 2025, the lowest annual transactional volume in 15 years.

Sales Volume / Yields

Although investors are actively seeking investment opportunities in the sector considering the retail sector’s performance, sales activity in Melbourne was subdued. Urban Property Australia research recorded almost $950 million of sales in the Melbourne retail property market in 2025, the lowest annual transactional volume in 15 years. Of the sales volume of retail property recorded in 2025, more than half was accounted by the sale of two assets – the 50% share of the Northland shopping centre for $385 million and the sale of Burwood One for $210 million. Investors continue to concentrate on assets supported by higher non-discretionary retail trade exposure, established anchor tenants, and convenience-focused retailing. With limited opportunity to invest but increasing investor appetite from both private and institutions, shopping centre yields have compressed over the year. Interestingly, yields for prime CBD and retail strip assets have remained steady reflecting the elevated vacancy rates of both asset types and investor caution. Looking ahead, Urban Property expects that yields to continue to be under downwards pressure despite possible interest rate rises given the scarcity of high-quality retail assets for investment.

Melbourne Retail Transactions

Demand

Despite easing employment growth, nation-leading population growth continues to underpin Victorian household spending. Over the year to November 2025, Victorian household spending increased by 4.9%, its highest annual growth rate since September 2023. With inflation appearing to have peaked, both discretionary and non-discretionary Victorian household spending is increasing, albeit discretionary spending still lagging with annual growth of 4.7% compared to non-discretionary annual growth of 5.2%. While sales of alcohol and tobacco have contracted, clothing retail sales increased by 7.5% over the year with growth also recorded in household goods (+6.7%), food (+6.5%) and cafes and restaurants (+5.0%).

Victorian Retail Trade

Retailer demand remains subdued for most discretionary forms of retail, with national retailers focusing on optimal locations rather than volume in expansion strategies. Non-traditional forms of retail services, including healthcare, wellness and gyms, have driven leasing activity.

Urban Property research recorded rental growth across all asset types apart from the prime CBD properties, underpinned by Melbourne’s growing population and constrained development pipeline. Over 2025, large format retail centres continued to outperform other Victorian retail assets with growth also recorded in neighbourhood and sub-regional shopping centres. Looking forward, Urban Property research anticipates that rents will continue to increase in 2026 with the exception of CBD-based assets which continue to be hindered by lower visitation trends compared to pre-2020.

Retail Strips

Total vacancy of Melbourne’s prime retail strips increased over the past 12 months with 12% of all shops vacant. The vacancy levels of Bridge Road, Richmond remains the highest at 18% with elevated vacancy rates at Chapel Street, South Yarra (14%) and Lygon Street, Carlton (11%). Elsewhere, the vacancy rate for Church Street, Brighton and Puckle Street, Moonee Ponds remain very low with both strips recording vacancy rates lower than 3%.

Melbourne’s prime strips performance varies significantly with levels of vacancy and neighbourhood amenities. 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. Increasingly, the tenancy mixes are becoming more diverse with service-based businesses such as gyms, allied health and education expanding their presence in the strips.

Several strips are benefiting from nearby developments, increasing the local population which have increased foot traffic to the precincts leading to increased tenant demand. The Victorian government’s activity centre program would likely further boost shopping strip foot traffic with the state government, encouraging more than 300,000 homes to be built close to public transport, jobs and services.

The continued elevated vacancy levels and rationalisation of some retailers has resulted in rental levels easing with Urban Property Australia seeing landlords also offering flexible lease terms and incentives to attract new occupiers.

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