APPD Market Report Article

Melbourne

November 28, 2022

Andrew Quillfeldt, Senior Director - Research, Australia

-0.2%

AUD 1,502

Decline
Slowing

Annual retail turnover growth remains significant

  • Melbourne’s retail turnover growth accelerated by 12.0% y-o-y in August 2022, marking the highest annual growth amongst all other Australian states for the month. Turnover growth was driven by spending in the clothing (28.8%), and cafes, restaurants and takeaway (28.0%) categories. Despite consumers’ pent-up demand, it is likely that turnover figures have been bolstered by rising prices.
  • Retail leasing activity has remained subdued across sub-sectors as retailers face labour shortages, rising cost of debt and uncertain macroeconomic conditions, including global supply chain disruptions.

Subdued level of supply to be delivered in the near term

  • No completions were reached across sub-sectors in the Melbourne market over the quarter.
  • The supply pipeline for the remainder of 2022 is moderate with about 41,900 sqm set to be delivered by the end of the year. A subdued 36,400 sqm in the pipeline is due for completion over the course of 2023. The current pipeline is dominated by large format retail (19.6%), neighbourhood (28.5%) and other retail (23.3%) sub-sectors.

Yields begin to soften across sub-sectors

  • Gross rents remained relatively stable across sub-sectors, except for Prime CBD. The CBD continues to suffer from reduced foot traffic and recorded a decline of 4.0% in gross rents over the quarter.
  • Yields across all sub-sectors softened over the quarter as a mismatch between buyer and vendor price expectations began to eventuate. Most significantly over the quarter, the median and midpoint yields for large format retail and neighbourhood centres respectively increased by 50 bps each.

Outlook: Retail turnover growth set to slow in the near term

  • Demand in the investment market is anticipated to continue to slow in the near term until a price equilibrium is reached between vendors and buyers. Therefore, yields are also likely to continue to soften in the near term as investors remain cautious amid an increasingly volatile economic environment.
  • Retail spending, particularly for discretionary goods, is likely to slow in the medium term as consumers’ budgets are squeezed from slow growth in wages, inflationary pressures and rising interest rates.

Note: Melbourne Retail refers to Melbourne's overall retail market.

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