Australia's population growth continues to be a significant driver for the retail sector. The latest figures show that the annual population growth rate reached 1.8% (+484,000) over the 12 months to September 2024, primarily driven by net overseas migration, which contributed 379,829 people. This influx has bolstered consumer demand, particularly in retail hubs.

Western Australia and South Australia have benefited from this trend, with increased foot traffic in retail centres contributing to higher retail turnover. The expanding population base is expected to sustain rental growth and attract further investment in retail properties.

Inflation

Inflation has remained within the Reserve Bank of Australia's (RBA) target range, sitting at 2.4% as of March 2025. The RBA's preferred measure of "trimmed mean inflation" dropped from 3.3 to 2.9 per cent, contributing to easing cost-of-living pressures. 

Consumer Sentiment

The recent drop has positively influenced consumer sentiment, which has rebounded to 95.90 points in March 2025, up from 84.44 points in the same period in 2024. Improving consumer sentiment, alongside recent interest rate cuts, has alleviated some of the inflationary pressures and supported retail spending. This trend is expected to continue, fostering a conducive environment for retail growth.

Retail Turnover

Nationally, Australian retail turnover rose 0.3% in March 2025, following increases of 0.2% in February and 0.4% in January. This steady growth was primarily driven by food-related spending in supermarkets and grocery stores.

Rental Growth

Rental growth has also been observed across all retail sectors. National average gross face rents increased by +0.4% for Regional Centres, +0.3% for Neighbourhood Centres, and +0.6% for Large Format Retail. Western Australia and South Australia have seen particular strength in rental growth, driven by improving economic conditions and an undersupply of retail assets. These trends indicate a positive outlook for retail turnover and rental rates moving forward.

Retail Asset Sales

Preliminary data indicates that total retail investment volumes reached $2.9 billion in Q3 FY25 representing a 29% increase year-on-year. In January 2025, the sale of Westpoint Shopping Centre (Sydney) for $900m by QIC to both Haben and Hines was completed. This transaction set the record for the largest individual retail property transaction in Australia, highlighting the growing optimism and fundamentals underpinning the Australian retail sector.

Retail Yields

Yields have remained stable, with most asset classes expected to be at the peak of the market, though there has been some tightening in Perth's Regional and Sub-Regional Centres, reflecting increased investor confidence. The recent interest rate cut did little to drive down yields however with a further 3 – 4 rate cuts forecast for 2025, it is likely we will see more movement across the remainder of the year.

Development Pipeline

Looking ahead, the development pipeline remains very limited, partly owing to the steep rise in construction costs and elevated interest rates. This scarcity of new retail projects has prompted asset repositioning strategies, enhancing the performance of current retail centres.

Australia’s strong population growth, and limited new shopping centre area, is driving a decline in per capita supply and underpinning high visitation levels and MAT growth in the major centres. The limited supply is expected to drive strong income growth for shopping centre owners and underpin sustained tenant demand.