Melbourne’s Retail Sector Set to Surge

Investment in Melbourne’s retail sector and consumer activity has rebounded strongly since pandemic lockdowns lifted, with a robust $1.20 billion in transactions notched across the second half of last year.

And as we near the end of Q1 2023, there could be plenty more growth left in the tank across the CBD market from both a short- and long-term perspective.

Let’s unpack the key areas of opportunity and factors creating favourable market conditions that could pour extra fuel on the retail investment fire and performance of the industry.

Short- and medium-term performance drivers

One of the key drivers that will support the performance of the Melbourne retail market is the imminent return of international students to Victoria.

More than 100,000 tertiary and higher-education pupils will be studying in the state this year (33 per cent more than last year), with many of these travelling students returning from China and India seeking accommodation in the city’s inner-metropolitan ring.

A positive economic reaction to this injection of students is that retail spending will spike, improving revenue for retail tenants across the city, as well as underpinning retail investment returns and creating leverage for CBD asset owners when negotiating sales and leasing terms.

There’s also a significant amount of investment and resourcing being directed into improving connectivity and amenity across the city, such as the Metro Tunnel public transport network which will create more permeability between the CBD and Melbourne’s suburban regions.

Economic outlook and population growth

Across 2011-2021, the Australian Bureau of Statistics revealed that Melbourne experienced the most population growth of any Australian capital city – growing by 806,800 residents to exceed five million people (over 150,000 more than Sydney in second place).

This upward trajectory is expected to continue, with projections released by the Centre of Population indicating Melbourne will grow past six million residents by 2032 and overtake Sydney as Australia’s most populated city.

Herein lies a terrific opportunity for investors to get involved in the retail sector, as the future growth of the city, coupled with the return of more city workforces from across the corporate arena, are all aligning to create solid upside potential for first-movers.

Melbourne’s world-class major events program, with stalwarts including Moomba, RISING Melbourne, the Grand Prix, the AFL season and Spring Racing Carnival, all combine to drive steady economic stimulus throughout the year too.

As these events have kicked-off, consumer spending levels have increased to record levels, even as interest rates and inflation cause headaches, which has been bolstered further by more people returning to CBD offices. The average weekday spend has surged past pre-pandemic levels and hit $31.68 million, according to City of Melbourne data.

Current opportunities for investor groups

One of the biggest beneficiaries of the current market conditions are well-established private investors, as this cohort has reduced borrowing requirements to mitigate the effects of further interest rate rises that could be implemented this year.

However, institutional investors should also consider playing the long game and implement aggressive acquisition plays in Melbourne’s retail space, with a view to arming themselves with a portfolio of prime-positioned retail assets that will capitalise on the gradual return of the city workforce in the short-term, as well as tap into opportunities stemming from Victoria’s future population growth and consumer spending.

Our leasing deal for Toto’s Pizza House – Australia’s first pizzeria on Lygon Street, Carlton – in December last year underscored a significant up-lift in demand and transaction activity for well-positioned retail assets across inner-city areas.

Another proof-point for the performance of the retail sector was our Celtic Club leasing campaign for Beulah, where we drove a host of high-quality leads through our social media and digital marketing strategy, which ultimately lead to us securing ex-MasterChef winner Sachi Cheliah as the property’s anchor tenant.

If you would like to learn more about the Victorian retail investment market, emerging opportunities in the space, or would like to discuss a separate property matter, please reach out to us at info@jonesre.com.au.