APPD Market Report Article

Melbourne

September 4, 2023

Andrew Quillfeldt, Head of Capital Markets Research, Australia

0.1%

AUD 1,500

Rents
Stable

Uptick in retail leasing activity

  • On a quarterly basis, overall retail spending remained broadly stable from the previous quarter. Nevertheless, declines in household goods and clothing spending indicated that consumers were cutting back on discretionary items. 
  • There has been an increase in leasing activity but leases are taking longer to be signed and finalised. Tenants continued to demand elevated contributions and fit-outs while landlords pushed for longer leases with renewal options to maintain profitability. 

Two projects totalling approximately 12,800 sqm reach completion

  • Supply additions totalled approximately 12,800 sqm across one Large Format Retail (LFR) and one neighbourhood centre. 
  • A modest uptick in retail completions is forecast for the second half of 2023, with about 58,500 sqm scheduled for completion, primarily consisting of the construction of new neighbourhood centres. 

Yield softening of 6 to 13 bps in most sub-sectors

  • Rents across all sub-sectors remained flat.
  • Excluding the sub-regional sub-sector which remained stable, all sub-sectors recorded a 6 to 13 bps softening.

Outlook: Further yield softening in most sub-sectors

  • Reduction in retail spending may pose headwinds to rental growth in some non-defensive assets.
  • The futures markets anticipate the RBA to raise interest rates further in 2023, which is likely to drive further asset revaluations and yield softening.
Note: Melbourne Retail refers to Melbourne's overall retail market.
More on 'Retail'

Talk to us 
about real estate markets.

Let's talk