Knight Frank’s Australian Retail Review found retail sales are gaining momentum, up 3.6 per cent over the year to February in nominal terms, with forecasts pointing to 3.5 per cent growth over 2025 as pressures on household budgets begin to ease.
Investment in retail property has surged, with $9.9 billion traded in 2024, representing a 39 per cent increase from 2023.
New South Wales led this recovery with $3.6 billion in transactions, followed by Victoria with $2.1 billion.
The positive trend has continued into 2025, with $2.9 billion in assets already traded in the first quarter. Investment volumes for the year are expected to match or exceed 2024 levels, driven primarily by activity in NSW and Queensland.
Knight Frank Senior Economist Alistair Read said economic conditions are aligning to support retail growth after a challenging period.
“After a long wait, households are starting to see relief with falling inflation, a cut in interest rates, a tight labour market and real wage growth,” Mr Read said.
“These factors are forecast to drive a 2.2 per cent annual increase in real personal disposable income in 2025, which, if realised, would be the strongest growth since 2021.”
The research indicates retail yields have stabilised at 5.7 per cent as markets grow increasingly confident that interest rates have peaked.
Capital returns across all types of retail assets experienced a second consecutive quarter of growth in Q4 last year, growing by 0.8 per cent.
Knight Frank Head of Retail Investments Campbell Aitken said investors are responding positively to improved economic conditions and reduced uncertainty.
“Turnover and leasing spreads in the major centres are on an upward trajectory, which are both contributing to improved investor sentiment,” Mr Aitken said.
“As a result, the market for retail assets is proving to be more liquid than office markets, and the outlook for income growth is arguably the best among the major sectors.”
While private investors dominated the retail property market in 2024, accounting for 35 per cent of total acquisitions, this trend is expected to shift in 2025 with the return of REITs and institutional investors to the market.
The report identified three key themes for the retail property market in 2025: major retailers becoming more active in acquiring retail assets, retail specialists dominating transactions despite increased interest from non-specialists and growth in mixed-use retail developments.
Mr Aitken said shopping centre returns will benefit from constrained supply and strong population growth.
“Looking ahead, shopping centre returns will be supported by constrained supply, with a limited development pipeline, and strong population growth, which is driving a decline in per capita supply and underpinning high visitation levels and MAT growth in the major centres,” he said.
“Continued positive leasing trends, resilience in non-discretionary retail and increased liquidity is expected to intensify competition and capital inflows.”
