CBRE

FIGURESIMELBOURNERETAILlQ32025

outperformanceinlargeformatretailsector

6.9%

MelbournecBDvacancyH125

Note:Arrowsindicatechangefrompreviousquarter.

43%

victoriaseasonallyAdjustedMonthlyHouseholdspendingY-o-YGrowth,August2025

h-1bp

Regionalcentrey-o-yyieldchange

$71.4m

Q32025victorianRetailTransactionvolumes

keypoints

--0--o-

seasonallyadjustedterms,hintingatarobust,thoughseasonallycautious,consumerspendingclimateinthestate.

--o-

remainslowbyhistoricalstandards.

-

centreandLFRassets.supplyisanticipatedtoalignwiththefive-yearhistoricalaverageof

c.143,600sqmp.a.

-

increasesof3.1%,0.9%and0.4%,respectively,whileotherretailassetsremainedbroadlystableduringthequarter.

-

$71.4m.ThemostnotabletransactionwasthesaleofBunningsThomastown.

--0-q.

FIGURE1:victoriaMonthlyHouseholdspending(seasonallyAdjusted)

source:ABS,CBREResearch

+Q.4%

Month-on-Month,August25

1.3%

Quarter-on-Quarter,August25

Economicoverview

TemporaryeconomicdriverssustainAustralia'seconomicgrowth

InQ22025,Australia'SGDpgrewby0.6%q-o-q(seasonallyadjusted,chainvolumemeasures)and1.8%y-o-y.Despiteunderlyingsoftness,thisgrowthwasfuelledbyrobustretaildiscounting,holidaytimingandspendingrelatedtotheFederalelection.publicinvestmentwasthemainobstacletoexpansion,whereasnettradeprovidedamodestboost,largelydrivenbyexportsofminingcommodities.

In202324FY,victoria'SGspexperiencedamoderategrowthof1.5%involumeterms,followingastronger3.4%increaseinthepreviousyear.Thisgrowthisconsistentwithabroadernationaltrend,asallstates

andterritoriesreportedpositiveGspgrowth,whileAustralia'soverallGDpgrowthstoodat1.4%.The

state'sdeclineinGsppercapita(-1.2%y-o-y)reflectspopulationgrowthoutpacingeconomicoutput.Thehealthcareandtransportsectorscontributedpositively,supportedbyrisingdemandandareboundin

domesticlogistics.

InMelbourne,thegrowthofpublicservicescontinuestobolsterthecity'sdevelopment,resultinginan

increaseinoffice-basedemployment.Furthermore,disposableincomeandconsumerspendinghaveseensignificantincreasesin2025vs.2024.

Inflationhitsitslowestpointsince2021,whilecpIincreases,spurredbyessentialgoods

InQ22025,annualinflationdecreased,reachingitslowestlevelsinceQ12021,at2.1%.CPIroseby0.7%qo-qwiththemostnotablepriceincreasesoccurringinthehousing,foodandnon-alcoholicbeverages

categories.Annualwagegrowthremainedunchangedat3.4%intheJunequarter-however,thismarksadeclinefromthepreviousyear,whenitwas4.1%.Theproportionofvacantpositionsroseto2.1%,while

filledjobsincreasedby0.2%toreach16.0million,indicatingagrowingdemandforworkersthroughouttheeconomy.

AccordingtotheABS,inAugust2025,victoria'sunemploymentratestoodat4.4%,reflectingarelativelystablelabourmarketbutslightlyabovethenationalaverageof4.2%.Theparticipationratewas67.0%,

andtheunderemploymentratesatat5.9%asignalthatwhilemanyvictoriansareengagedintheworkforce,anotableportionmaystillbeseekingmorehoursorbetteropportunities.

End-of-financial-yearsaleshavepropelledhouseholdexpenditureupward

InAugust2025,householdexpenditureinAustraliashowedconsiderabley-0-ygrowthof5.0%,drivenbyenhancedconsumerdemand,especiallyforpersonalgoods,healthandfashion.Discretionary

spendingsawstrongannualgrowthof4.2%,asAustralianswereincreasinglywillingtospendonnonessentialitemslikeclothing,diningoutandentertainment,asignofpositiveconsumersentimentandeconomicrecovery.

HouseholdspendinginvictoriainAugust2025roseby0.4%m-o-mand4.3%y-o-yinseasonallyadjustedterms,hintingatarobust,thoughseasonallycautious,consumerspendingclimateinthestate.spendingontransport,healthandhospitalityindicatesashiftbacktowardservicesand

experiencesinvictoria,thankstopostwinterrecoveryandpresummerplanning.

FIGURE2:AustralianNominalandRealGrowthcomparisonbyQuarter

source:ABS,CBREResearch

supply

RetaildevelopmentlagsbehindMelbourne'srapidpopulationgrowth

Melbourneispoisedtoseec.366,600sqmofretailsupplydeliveredacross2025-2026.Theupcoming

supplypipelineremainslimited,primarilyfocusingonLFRdevelopmentsandneighbourhoodcentres,

whichareprojectedtoaccountforaround37%and29%ofthetotalsupplyinthenexttwoyears,

respectively.ThistargetedexpansionalignswithMelbourne'srecentsurgeinpopulation,drivenby

robustmigration,economicopportunitiesandahighqualityoflife.Therefore,demandforretailfacilitiesisintensifying,placingupwardpressureonbothexistinginfrastructureandfuturedevelopmentneeds.

Regionalcentresupplyremainslimited.InMelbourne'shighlycompetitiveretailenvironment,

opportunitiesforestablishingnewregionalcentresarescarce.consequently,assetownersarefocusingonenhancingtheperformanceofexistingpropertiesthroughrefurbishmentsandextensions.These

upgradesoftenincludemodernisinginfrastructure,refreshingaesthetics,optimisingtenantmixesand

integratingnewtechnologiestoimprovethecustomerexperience.Moreover,theriseofe-commercehasspurredinnovationsintheretailsectorasdemandforexperientialandmixed-usespacesrisesinpursuitofattractingfoottrafficandboostingoverallvalue.

LFRassetsareontracktoexperiencesubstantialgrowth,withseveralnewdevelopmentsspringingupacrossthestate,totallingc.136,610sqmofnewsupplyin2025-2026.Thetrendisparticularlyevidentintheexpandinggrowthcorridorsoftheurbanfringeandmetroareas.Developerconfidenceinthese

assetsremainsstrong,indicatingabuoyantretailenvironmentacrossMelbourneintheforeseeablefuture.

NewlycompletedcBDdevelopmentsaresettoplayapivotalroleinMelbourne'sretailmarkettrajectory

NewcBDsupplyremainslimitedbutnotable,withc.41,077sqmslatedfordeliveryacross2025-2026.InQ32025,majorcompletionsincludedThewalk,299BourkeandMecca'SFlagshipBourke,allofwhichareontracktorevitalisethecity'sretailcore.Thesedevelopmentsareexpectedtodriverenewed

leasingactivity,attractbothlocalshoppersandtouristsandenhancethevibrancyofMelbourne'sretailprecinct.

FIGURE3:MelbourneRetailsupplybycategory

300,000

250,000

200,000

150,000

50,000

20182019202020212022202320242025F2026F2027F2028F

CBD

Regional

subRegional

Neighbourhood

LargeFormat

5-yearAverage

source:CBREResearch

FIGURE4:MelbourneFuturesupplybypropertyandDevelopmentType,2025-2028

Rentalperformance

MelbournecBDrentsareholdingfirmamideconomicinstability

Q32025CBDsuperprime,sub-regionalandprimestripesmaintainedconsistentnetfacerents.

Threesegmentsstoodoutwithmodestgrowth.Regionalcentresexperiencedarobust+3.1%q-o-qgrowth,fuelledbyincreasedconsumerdemand.LFRspacessawnetfacerentsriseby2.1%q-0-q,thankstoapersistentappetiteforelectronicsandbulkyitems.Meanwhile,neighbourhoodcentresalsoshoweda0.4%q-o-quptick,reflectingacautiouslyoptimisticoutlookamongshoppers.

MelbournecBDrentshavelaggedbehindthewidermarket,primarilyduetoaslowdowninactivitydrivenbyeconomicuncertainty.Tenantsremainedcautiousabouttheeconomicoutlook,

particularlyinlightoffluctuatinginterestrates.Thisledtodelayedleasingdecisions,shorterleasetermsandapreferenceforflexibility,whichsuppressedrentalgrowth.Despitethis,incentivesintheCBDfellby250bpy-o-y,asvacancytightenedinhighfoottrafficareas,easingpressureon

landlords.

corestriplocationsininnercityareasareoutperforming,benefitingfromstrongrentalgrowthanddecliningincentives,asdemandremainshighforwell-positioned,high-qualityretailspaces.In

contrast,noncorestriplocations,particularlyinouterorsuburbswithsofterfoottraffic,arestruggling,ascBDretailandmajorshoppingcentresareattractingconsumersbyprovidingenhancedconvenienceandawiderrangeofoptions.

LargeFormatRetailhasemergedasoneofthebest-performingretailassetclasses

LFRassetsdemonstratedthestrongestannualperformance,withrentsincreasingby4.0%,closelytrailedbyregionalcentresat3.7%.Incomparison,othershoppingcentreassetsexperiencedmoremoderatey-o-ygrowth,withneighbourhoodcentresleadingat2.4%,followedbysub-regional

centresat1.5%,

LFRassetshaveseenadownwardtrendinleasingincentivesof104bpy-0-y,signallinga

strengtheningmarketdrivenbyheightenedtenantdemand.LFRvacancyratesinmetroMelbournearetightening,especiallyinprimecentres.Asaresult,landlordsinthishighdemandsectorare

graduallyraisingrents,influencedbyalimitedcompetitivelandscape.

FIGURE7:victoriakeyLeasingRatesbyRetailAssetcategory

CBDsuperprime

6,500

stable

stable

5,038

stable

+3.3%

22.5%

stable

250bp

Regional

1,554

+3.1%

+3.7%

1,388

+3.1%

+3.4%

10。7%

stable

21bp

subRegional

904

stable

+1.5%

767

stable

1.2%

15.1%

stable

235bp

Neighbourhood

731

+0.4%

+2.4%

633

0.7%

1.6%

13.5%

100bp

350bp

primeLargeFormat

315

+0.9%

+4.0%

274

+1.4%

+5.4%

13.1%

-38bp

-113bp

primestrips

569

stable

+1.0%

467

stable

+2.2%

17.9%

stable

104bp

source:CBREResearch

4.5%

4.0%

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

O.5%

0.0%

FIGURE8:NetFaceRentGrowthbyRetailAssetcategory

●

superprimecBD

Regional

●

sub-Regional

shoppingcentres

Neighbourhood

●

primeLargeFormat

Q-O-QY-O-Ysource:CBREResearch

InvestmentMarket

Thescarcityofhigh-qualityretailassetsisrampingupcompetition

InQ32025,investmentactivityinGreaterMelbourne'sretailsectortotalled$71.4m.ThisincludedthesaleofBunningsThomastown(11DaltonRd)aspartofamajorportfoliosale,highlightingstrong

demandforhigh-qualityretailassets,especiallyintightlyheldindustrialprecinctswithsolidfundamentals.

Retailassetsaredrawingmoreinterestfrombothprivateandinstitutionalinvestorsduetotheirreturnprofiles,limitednewsupplyandinherentgrowthpotential.whileinstitutionalcapitalisreassertingitspresence,privatecapitalremainshighlyactive,oftensteppinginwhereinstitutionsaremoreselective.Manytop-tierretailassetscontinuetobetightlyheldbylong-terminvestors,reducingturnoverand

curbingsupply.AS2025approachesitstailend,investorsarepositionedtocapitaliseonopportunitiesfacilitatedbysustainedpopulationgrowthandexpectedinterestratecutsinlate2025-early2026.

Retailyieldshaveselectivelycompressedasinvestorsbackincome-secureassets

InQ32025,sub-regionalshoppingcentres,LFRassetsandregionalcentresinMelbourneallsawaq-o-qyieldcontraction,withdeclinesof23bp,10bpand7bp,respectively.Neighbourhoodcentresalso

recordedaslightdecreaseof1bp.Incontrast,yieldsforcBDandprimestriplocationsheldsteady,indicatingcontinuedcautionaroundcBDretailrecovery.Thisbifurcationsuggestsinvestorsare

selectivelyreratingassetsbasedonincomesecurity,demographictailwindsandlocationfundamentals.

Afterreachingcyclicalpeaks,yieldexpansionintheretailsectorhasbeguntomoderate,reflecting

growinginvestorconfidenceincurrentassetpricingandfutureinterestratetrajectories.Intheshortterm,yieldsareexpectedtoremainrelativelystable,withlimitedmovementanticipateddueto

cautiousoptimismandconstrainedsupply.However,Australia'songoingratecuttingcyclemay

influencecapratesandinvestorreturnexpectations,potentiallytriggeringrenewedyieldcompressioninhigh-performingretailformatsasborrowingcostsdeclineandcapitalflowsincrease.

FIGURE9:victoriaRetailsalesbyAssetcategory

2,500

source:CBREResearch

FIGURE10:victoriaRetailyieldsbycategory

source:CBREResearch

contact-Research

katyaEzhova

ResearchAnalyst,VIC+61421547176

katya.Ezhova@cbre.com

kateBailey

HeadofRetail&AlternativesResearch+61438528352

kate.Bailey@cbre.com.au

sameerchopra

HeadofResearch,pacificandESGAPAC+61422242830

sameer.chopra@cbre.com

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