Melbourne retail demand remains strong with vacancy decreasing across three sub sectors

• Vacancy decreased across all subsectors except sub-regional and CBD during H2 2025. CBD vacancy was driven by CBD strip vacancy as opposed to enclosed centre vacancy.
• Large Format Retail recorded the lowest vacancy rates of all Melbourne retail sub-sectors for two consecutive quarters, reflecting robust consumer demand and the diverse tenant mix successfully filling these spaces.

Five completions were recorded, totalling 35,800 sqm

• Four Melbourne retail projects completed in the quarter (11 YTD), including AUD 50 million redevelopment of 260 Collins Street, rebranded Collins Arcade. Neighbourhood centres are expected to account for 8 out of 14 (approximately 136,257 sqm) completions in 2026.
• New supply of Regional/subregional centres remains constrained, with supply limited to refurbs/extensions for these subsectors through to 2028.

Yields tighten in subsectors as LFR leads Rental Growth

• Rental growth saw an uptick across LFR, Neighbourhood, CBD Prime and Regional centres. LFR for the second consecutive quarter experienced the largest quarter-on-quarter increase at 2.0% totalling a year-on-year change of 4.47%.
• Sub-regional yields compressed in Q4 2025 by 25 bps and Neighbourhood yields compressed by 12.5bps.

Outlook: Yields set to compress further as increased transaction activity validates strong retail investment demand

• The Reserve Bank of Australia (RBA) is expected to hold interest rates in H1 2026.
• Yields are expected to tighten further in Q1 2026 as increased transactional evidence emerges from investment activity, providing stronger market validation of current pricing levels.