9 July 2025
In conversation with Don Foulds
We sat down with Don Foulds, National Director | Retail Advisory at Charter Keck Cramer, to get his insights on the current state of the Australian retail property market, emerging trends, and the outlook for the sector over the next 6–12 months.
How would you describe the current state of the Australian retail property market, and what have been the key drivers of change over the past 12 months?
The Australian retail property market has entered a dynamic phase marked by renewed confidence, particularly in non-discretionary retail segments. Over the past 12 months, institutional investors, major REITs and private syndicates have been increasingly targeting neighbourhood and sub-regional shopping centres, driven by stable yields and resilient tenant performance. This increased competition for high-performing neighbourhood centres has compressed cap rates, particularly for prime metro assets.
New developments are challenging and there are signs construction costs are stabilising to enable these projects to commence, although often requiring revised lease renegotiations with tenants to ensure projects are viable. The widening gap between acquisition cost and replacement value (often >30%) continues to favour existing centres over new developments.
What are some of the emerging trends you’re seeing in tenant mix, leasing strategies or retail formats?
Tenant mix strategies are becoming increasingly data-driven and locally responsive. Centres that tailor their offering to the demographic profile of their catchment are outperforming expectations. For example, retailers catering to diverse ethnic communities, such as Indian and Asian grocers, are expanding rapidly, often doubling their footprint within 12 to 18 months of opening.
Leasing strategies are evolving in response to cost-of-living pressures, with a clear emphasis on securing a strong base of non-discretionary retailers. Investors continue to favour centres anchored by supermarkets, fresh food and essential services, while maintaining a balanced mix that includes complementary discretionary retail.
Meanwhile, high-performing brands like Mecca are emerging as key players, leveraging innovative branding, digital engagement and premium in-store experiences to drive customer loyalty and set new benchmarks in discretionary retail.
Retail formats are also shifting, with many tenants reducing store sizes to manage occupancy costs while maintaining sales performance. This trend is particularly evident in categories like discount variety, where operators are adopting more efficient layouts to maximise turnover within a smaller footprint.
How are shifting consumer behaviours, including online spending and cost-of-living pressures affecting retail asset performance and investor sentiment?
The major retailers, particularly supermarkets are maintaining three platforms to service customers – bricks, pickup and delivery. Online sales for supermarkets continue to grow, now accounting for approximately 8% of total sales, with consistent compound growth year on year. Interestingly, most landlords have embraced the shift and worked with tenants to provide drive through and drive-up options. A benefit is a high proportion of pick-up customers also walk into the centre to complete their shop, supporting other retail.
It is of no surprise that customers are prioritising spending on essential services due to cost-of-living pressures. In turn, supermarkets are focusing on their lower cost home brand range and loyalty programs. Loyalty programs are evolving into digital ecosystems. Woolworths’ Everyday Rewards and Coles’ Flybuys are not only driving repeat visitation but are being monetised via data analytics and targeted partnerships, contributing to non-core revenue streams.
As previously mentioned, investors are increasingly focused on centres that strike a strong balance between non-discretionary and discretionary retail. Asset performance is being underpinned not only by tenant mix but also by landlords who are actively investing in the customer experience, through centre upgrades, placemaking initiatives and curated retail offerings that foster community engagement. In a competitive and cost-conscious environment, these factors are becoming key differentiators that drive foot traffic, tenant retention and long-term value.
What is the outlook for key retail asset types (e.g. neighbourhood centres, Major Activity Centres and large format) in the next 6–12 months?
The outlook for retail assets over the next 6–12 months remains generally positive, with continued investor interest in well-located, resilient formats.
Neighbourhood centres continue to be highly sought after, underpinned by strong-performing supermarkets and exposure to non-discretionary spending. These centres have proven their resilience in volatile market conditions and remain a key focus for institutional and private investors, contributing to further yield compression in prime locations.
Major Activity Centres are undergoing a structural shift. Increasingly, new developments are being delivered without traditional discount department store (DDS) anchors, reflecting evolving consumer behaviours and retailer strategies. A key challenge will be ensuring that town planning controls keep pace with these changes, enabling more flexible and mixed-use outcomes to support long-term viability.
Large Format Retail (LFR) has stabilised following the oversupply period driven by the exit of Masters Hardware. Leasing demand remains strong, particularly from value-focused categories such as furniture, automotive, and homewares, with brands like Bunnings, TK Maxx and Spotlight actively expanding. While rental growth remains modest, assets in strategic locations are experiencing increased interest due to their adaptability and relatively low occupancy costs.
Across the board, new development remains constrained by elevated construction costs and feasibility challenges. However, undersupply in high-growth corridors, particularly in Queensland and outer metropolitan Melbourne, is expected to drive targeted development activity, particularly where population growth and infrastructure investment support long-term demand.
Investor sentiment continues to favour assets with strong covenants, sustainable foot traffic and exposure to essential retail. As a result, growth opportunities are emerging in outer metro and regional markets, where long-term fundamentals remain compelling despite short-term macroeconomic pressures.
How are retailers and landlords responding to current challenges through redevelopment, repositioning or joint ventures?
Retailers and landlords are actively evolving their strategies in response to economic pressures, changing consumer behaviours, and a shifting retail landscape. Redevelopment, repositioning and joint ventures are central to unlocking value and future-proofing assets.
Redevelopment and repositioning efforts are focused on adapting existing centres to meet contemporary consumer expectations. This includes enhancing food and beverage offerings, introducing service-based tenants, improving amenity and accessibility, and investing in placemaking to create more engaging, community-focused environments. Underutilised retail space is increasingly being repurposed into medical, allied health, fitness, education or coworking uses, providing consistent foot traffic and diversifying income streams.
Mixed-use development is also becoming more sophisticated, with retail increasingly integrated into broader precincts incorporating residential, healthcare, education and commercial uses. These developments offer the potential for higher land utilisation and more resilient long-term returns. However, successfully integrating these diverse uses requires careful design and planning to resolve competing needs around logistics, noise, activation, and operational management.
Joint ventures between landlords, residential developers and institutional capital are becoming more common, particularly in high-density areas where retail podiums are paired with Build-to-Rent or Build-to-Sell residential above. The most successful outcomes emerge where alignment between stakeholders is established early, ensuring commercial objectives and design intent are shared from the outset.
Overall, the focus has shifted from retail as a standalone asset to retail as a component of larger, integrated destinations that respond to evolving community needs and urban growth.
Are you seeing increased interest in any locations from investors or developers, either domestically or internationally?
Yes, we’re continuing to see heightened interest in growth corridors across South-East Queensland, Western Sydney, and outer metropolitan Melbourne. These areas are benefiting from strong population growth, major housing developments, and significant infrastructure investment, factors that underpin long-term demand for essential retail services. In particular, neighbourhood and sub-regional centres anchored by supermarkets and medical offerings are in high demand due to their resilience and alignment with daily consumer needs.
Domestically, institutional investors and private syndicates are actively pursuing assets in these corridors, often in anticipation of future urban growth and changing retail dynamics.
From an international perspective, Australia’s retail market remains attractive to capital from Singapore, Canada and the UAE, among others. These investors continue to view Australian retail, particularly non-discretionary focused centres with long WALEs and inflation-linked leases, as a defensive and stable asset class. In some cases, offshore capital is entering the market via joint ventures with local partners who bring development expertise and market insight.
This increased interest is contributing to competitive bidding environments for quality assets and, in some locations, is helping to accelerate retail-led mixed-use development activity where planning frameworks support higher-density outcomes.
Get in touch with Don Foulds today!
