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According to new research from Knight Frank, investor sentiment in the retail property market is gaining strength, with the sector expecting to see price growth in 2025.
Deal volumes have started to improve over the course of the year, with $3.9 billion traded in the first half of 2024, a 46 per cent increase on H1 of 2023.
Most of the increase in interest has flowed from the private investor segment, with that cohort responsible for 41 per cent of total retail acquisitions over the six-month period.
With an interest rate cut projected for the first half of 2025, investors are feeling cautiously optimistic about the economic climate as well as retail’s fundamentals, according to the firm. Over the course of 2023, leasing spreads – which are calculated as the difference between the new rent and the prior expiring rent over the same space – saw broad growth. Moving annual turnover rates (MAT), indicating the average turnover generated by a property over a period of time, also have trended into positive territory.
Investors are additionally expecting that a 2025 rate cut will give way to more general consumer spending, sending shoppers back into retail in greater numbers and delivering an increase in demand for retail space.
Taken together Ben Burston, chief economist at Knight Frank, reported that commercial retail prices are expected to rise 3 per cent in 2025, off the back of a slow 12 months for sales momentum.
“The combination of solid wage growth and declining inflation has shifted real income growth back into positive territory, and further improvements are expected in 2025 and 2026. In addition to this, tax cuts and a raft of cost-of-living measures from state and federal governments will also aid the consumer and bolster disposable income,” he said.
He noted that major retail owners have recently reported strong leasing spreads, with Vicinity and Scentre Group posting growth of 3 per cent and 3.1 per cent respectively.
“In addition, major shopping centres have experienced solid growth in MAT over the past year, with most major centres experiencing growth of 4 per cent to 6 per cent, supported by strong population growth and the gradual restoration of centre visitation after the disruption caused by the pandemic,” he said.
Looking ahead, limited supply is expected to support growth, with the development pipeline remaining very limited. Knight Frank reports that major owners presently appear more focused on optimising the performance of existing assets rather than expanding their holdings through development.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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