Retail is back in the investment spotlight, according to Knight Frank’s latest Australian Retail Review.
The report reveals retail property outperformed all other commercial asset classes in the first half of 2025, driven by strong population growth, rising real incomes and limited new supply.
We spoke with Knight Frank Senior Economist, Research & Consulting, Alistair Read, about the factors behind renewed investor confidence in retail and the market’s future direction.
Consumers Lead the Comeback
The data points to an improving economic backdrop.
Real household disposable income rose 4.2% in the year to June 2025 - the fastest pace since early 2021 - while retail sales climbed 5.1% in the 12 months to July.
Knight Frank’s research shows these factors, combined with falling interest rates and strong population growth, are driving higher retail spending and improving trading conditions.
“Households are now starting to see lower interest rates flow through to stronger household budgets and higher disposable incomes,” Mr Read said.
“Household spending has risen in 10 of the last 12 months, driving an increase in consumption as households become increasingly confident about an improvement in their financial situation.”
Investors Zero In On High-performing Centres
Retail property is now the most traded commercial asset class, with investment volumes surging as buyers move to capitalise on the sector’s upswing.
Transactions reached $6 billion in the first half of 2025, ahead of industrial ($5.6 billion) and office ($3.7 billion) assets.
That’s a 17% increase on the same period last year, reflecting renewed investor confidence.
New South Wales led with $3 billion in deals, followed by Queensland ($1 billion) and Victoria ($900 million).
New South Wales led with $3 billion in deals, followed by Queensland ($1 billion) and Victoria ($900 million).
Capital values also rose 1.6% over the year to June - the first annual increase since early 2023.
While confidence is rising, performance varies across retail classes.
While confidence is rising, performance varies across retail classes.
Knight Frank’s data shows large regional centres and small neighbourhood centres are recording the strongest capital growth, supported by population gains and demand for convenience-based shopping.
“Sub-regional retail assets are currently the best performing assets with total returns of 8.7% over the past year,” Mr Read said.
“This strong performance reflects limited new supply and sustained population growth, which have driven strong income growth as retailers compete for a limited amount of available retail space.”
What’s Next for Australia’s Retail Revival?
Knight Frank expects momentum to continue, with population growth and easing cost pressures supporting stronger retail consumption.
“The retail property sector has a bright outlook for 2026 with the expected return of both income and capital growth,” Mr Read said.
“A strong pick-up in retail sales in the first few weeks of the 2026 financial year suggests that this momentum will likely continue to translate to strong retail sales growth over the year.”
Looking ahead, Knight Frank’s report highlights five trends investors should watch closely:
· Big demand for small assets: Retail properties under $300 million continue to attract multiple bidders.
· Capital raising strength: Liquidity remains high, signalling ongoing investor appetite.
· Residential integration: Some owners are adding build-to-rent or build-to-sell elements to boost value while keeping retail as the core focus.
· Lease structure shifts: Landlords are gaining leverage as competition grows among major supermarkets and discount department stores.
· Reconfigurations over expansions: Repurposing underperforming department store space is emerging as a cost-effective way to lift returns.
