After a few years on the sidelines, institutional investors are once again turning their attention to Australia’s retail property sector.
Knight Frank’s latest Australian Retail Review shows retail investment volumes jumped by 39% in 2024 to $9.9 billion – the first annual increase in three years.
That momentum has continued into 2025, with $2.9 billion in assets traded in the first quarter alone.
With investment volumes, capital growth and leasing activity all on the rise, Knight Frank experts say the stage is set for the return of institutional capital.
Economic Tailwinds Strengthen Retail Outlook
Economic factors are strengthening the outlook for retail investment.
As inflation eases, interest rates stabilise, and household spending begins to lift, conditions are aligning to support a more confident and active investor environment.
According to the report, real personal disposable income is forecast to increase by 2.2% in 2025, underpinning a 3.5% rise in retail turnover and boosting investor confidence in tenant demand.
“Over the past few years, high interest rates have constrained consumer spending,” said Knight Frank Senior Economist Alistair Read.
“As these pressures ease and disposable incomes improve over 2025, this should flow through to stronger retail sales and support the performance of retail assets.”
Population growth is also playing a key role.
“Population growth is outpacing the expansion of retail space, meaning the amount of space is actually declining in per-capita terms,” Mr Read said.
“This supports a strong long-term rental growth outlook for retail assets.”
These broader tailwinds also coincide with a repricing of retail assets, creating a timely entry point for institutional capital.
Institutions Reassess Their Retail Strategy
While private investors dominated the sector in 2024, accounting for 35% of total retail investment volumes, a shift is underway.
Knight Frank Head of Retail Investments, Campbell Aitken, said the recent uplift in capital growth is prompting a strategic rethink from institutions and Real Estate Investment Trusts (REITs).
“Valuations bottomed out in 2024, and now all the indicators suggest they’re starting to rise again. The expectation that interest rates will come down is definitely a contributing factor,” he said.
In response, institutions are reweighting their balance sheets, with retail now firmly back on the agenda.
“Fundamentals are strong, and there’s a real lack of new supply coming online,” Mr Aitken said.
“All the major REITs are now posting positive re-leasing spreads, so everything is pointing towards strong income growth as well as potential for cap rate compression.”
Mr Aitken said institutional interest was building in response to improving fundamentals across key retail sub-sectors.
“The demand is focused on sub-regional and regional shopping centres, particularly in metropolitan areas across Australia,” he said.
As confidence builds, retail is expected to attract a greater share of institutional capital over the next one to two years.
“I think the REITs are now clearly indicating that they are strongly focused on retail. It’s a very positive outlook for institutional investment in the sector,” he said.
“The biggest challenge will be the lack of available stock – everyone wants to buy, but no one wants to sell.”
