Australia’s retail property sector has been attracting increased capital from investors seeking to capitalise on the rebound, according to research from property consultancy Knight Frank.
The firm’s latest Australian Retail Review report shows that retail is one of the strongest performing sectors in the commercial property market, thanks to strong population growth, rising real incomes and a lack of new supply.
Retail property was the most traded asset class in this year’s first half, with $6 billion transacted, ahead of the industrial ($5.6 billion) and office ($3.7 billion) sectors, the research finds.
Total investment volumes for retail property during the period were up 17 per cent year-on-year. NSW led the way with $3 billion traded, followed by QLD ($1 billion) and Victoria ($900 million).
Real household disposable income grew by 4.2 per cent over the year to Q2 2025, which was the strongest growth since Q1 2021. In nominal terms, retail sales were up 5.1 per cent in the year ended July, signalling a continued turnaround.
“While trading conditions remained tough in 2024-25, there are green shoots in the consumer environment and outlook for retail consumption,” said Alistair Read, Knight Frank’s senior economist, research & consulting.
“Many retailers pointed to a strong pick up in sales growth in the first few weeks of the 2025-26 financial year as an indication that improving consumer sentiment and incomes were beginning to translate into retail sales growth,” Read added.
The report found that capital values for retail property grew 1.6 per cent in the year to Q2 2025 – the first annual growth since Q1 2023 – driven by both falling interest rates and strengthening rental growth.
“The return to growth in leasing spreads, MAT and household spending combined with the limited supply of new retail stock, is persuading more investors that the sector’s tailwinds are growing, with retail offering strong long-term growth potential as the economy recovers,” said Campbell Aitken, Knight Frank’s partner, head of retail investments.
“The outlook for income growth is also arguably the best among the major real estate sectors,” he added.
The research highlights five key elements that will shape the retail sector’s future outlook. These include high demand for small assets and full control, a strong capital raising environment, growing residential developments, the shifting structure of major tenant leases, and reconfigurations as a cost-effective alternative to expansion.
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