Investors return to the retail sector with $10bn rebound
Improved investor sentiment has sparked a recovery in the retail sector, leading to nearly $10 billion in investment volumes for 2024, with 2025 expected to match or exceed the momentum.
Knight Frank’s latest Australian Retail Review for April 2025 showed that retail sales grew by 3.6 per cent in the last 12 months to February, boosting investors’ confidence and engagement in the sector.
The report found that in 2024, national retail investment sales rose by 39 per cent compared to the previous year, totalling $9.9 billion, with NSW leading at $3.6 billion, followed by Victoria at $2.1 billion, and Queensland at $1.8 billion.
According to the data, shopping centres accounted for the bulk of investment sales, reaching 79 per cent.
Knight Frank’s head of retail investments, Campbell Aitken, said that the stabilised rental yields at 5.7 per cent enhanced investor sales volume in the sector, despite an increase of only 44 basis points over the last two years.
“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,” Aitken said.
Aitken noted that the country’s improved economic outlook, reduced inflation uncertainty, and interest rates have encouraged investors to return to the market.
“Turnover and leasing spreads in the major centres are on an upward trajectory, which are both contributing to improved investor sentiment,” Aitken said.
Knight Frank’s report indicated that after two years of pressure from high inflation and rising interest rates, households have finally found relief as inflation eases, interest rates decline, and real wages increase.
The firm’s data forecast a 2.2 per cent annual increase in real personal disposable income in
2025, which could represent the strongest growth since 2021, driving retail sales by 3.5 per cent.
Aitken said retail investments are expected to grow further in 2025 following a 0.8 per cent increase in capital returns for all retail asset types for two consecutive quarters last year.
“This indicates the bottom of the cycle valuations cycle has likely passed, which is luring investors who are anticipating strong asset performance in years to come.”
According to Knight Frank, retail investment volumes in 2025 are anticipated to match or surpass 2024 levels, with NSW and Queensland at the forefront of the country.
Since the beginning of the year, the firm’s data showed that over Q1 2025, $2.9 billion of assets have already been traded nationwide.
So far, NSW has accounted for most of the volume by selling the Westpoint Shopping Centre in January for $900 million, marking the largest individual retail property transaction in Australia.
In 2024, private investors accounted for 35 per cent of total acquisitions made in the retail property market, but Aitken said the trend won’t last in 2025 as REITs and institutional investors return to the sector.
“Continued positive leasing trends, resilience in non-discretionary retail, and increased liquidity is expected to intensify competition and capital inflows,” he said.
According to Knight Frank’s report, three key trends are set to shape the retail property market in 2025: increased activity from major retailers, the continued dominance of retail specialists in transactions, and a growing focus on mixed-use retail developments.
“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,” Aitken concluded.