Retail sales data for May 2025 (latest data available) showed a +0.2% MoM increase, with sales increasing +3.8% QoQ. While positive MoM growth, the subdued sales growth strengthens the case interest rate cuts in August, with consumption expected to recover over the remainder of 2025, supported by a rebound in real household incomes.

The May increase was driven by a rebound in clothing, footwear, and department store spending, while food-related spending declined. Food retailing dropped by 0.4% and spending in cafes, restaurants and takeaway food services was flat at 0%.

Western Australia and Victoria led quarterly growth, recording increases of +5.9% and +4.8%, respectively.

Inflation data for FY25 showed promising signs, with both underlying and trimmed mean inflation returning to the RBA’s 2–3% target band for the first time since December 2021. Underlying inflation has eased to 2.1%, while trimmed mean inflation has fallen to 2.7%, reinforcing the case for continued monetary easing as the cash rate moved down from 4.35% to 3.85% over the FY25 period, and has since dropped to 3.60% as of 13 August 2025.

Despite this moderation, risks remain. The expiry of the 90-day pause on US tariffs in July 2025 could disrupt supply chains and push import costs higher, while slower population growth and a gradual recovery in real incomes may temper household consumption. Global uncertainty and domestic volatility present both upside and downside risks, but underlying inflation is expected to stabilise near the midpoint of the target band by late 2025.

The Consumer Sentiment Index (CSI) rose 0.5% in June 25, reaching 92.6 from 92.1 in May 25. Rate cuts and easing inflation are lifting buyer sentiment, but weak growth and global trade tensions remain a concern.

The rebound has been supported by two additional interest rate cuts this quarter, with markets now pricing in at least two further cuts before year-end. This improved sentiment has directly benefited retail sales and contributed to a more optimistic outlook for the remainder of 2025.

Nationally across the retail sub-sectors, average gross face rents continue to grow increasing by +0.3% QoQ, recording a +1.5% YoY growth. Regional and Sub-Regional Centres recorded quarterly growth of +0.3% and +0.2% respectively, driven by tenant expansion and strong competition for prime, high-footfall sites.

Neighbourhood and Large Format Retail also saw steady rental growth of +0.2% and +0.6%. Stable profit margins, decreasing occupancy ratios, and low vacancy rates continue to support rental growth.

Intensifying buyer competition has underscored strong retail transactional activity over Q4, as key tailwinds supported heightened capital deployment. Retail transaction volumes reached $3.14 billion in Q4 FY25, marking a +51% increase from Q3 and a +76% rise compared to Q4-FY24. Regional and Neighbourhood Centres have seen increased levels of activity in Q4-FY25 comparatively to Q4-FY24, increasing by +313% and +130% respectively.

Following a 50bps reduction in the cash rate this year and further cuts forecasted, buyer capacity is expected to strengthen. With rents and capital values now re-based, and income growth projected to remain strong, the retail sector presents a timely opportunity for attractive risk-adjusted returns in the current cycle.