Melbourne retail completions to jump 76% in 2023
But completions will still be below historical levels till 2025.
Melbourne only saw one new retail development in 1Q22. This was the Richmond Quarter development which comprised 7,400 sqm. The remaining supply pipeline for 2022 is currently minimal, with only two more projects expected to be completed.
JLL says Melbourne retail completions are set to increase 76% in 2023 but are still currently projected to remain significantly below historical completion level up to 2025. Retail landlords are still continually focused on the refurbishment or redevelopment of existing assets rather than creating new retail space.
Here’s more from JLL:
Retail trade growth remains elevated since the last lockdown
Victoria’s recorded q-o-q total retail trade growth of 6.0% in February compared to 10.1% in December 2021, indicating a moderation in retail activity from the high levels in the previous quarter. Post-lockdown discretionary spending has been strong in department stores, and cafes, restaurants, and takeaway food, recording monthly growth of 10.9% and 17.7% m-o-m respectively.
Retail leasing activity remained soft due to lockdown disruption in Victoria in 1Q22. The majority of the leasing demand is being driven by national brands while leasing demand remains weak from independent retailers.
Melbourne retail yields remained stable in 1Q22
The investment market remained stable during 1Q22 with the average yield unchanged across all sub-sector. However, sub-regional centres recorded 25 basis points of compression at both the upper and lower end of the range, being the only sub-sector to record any yield movement over the quarter.
Gross rents have begun to stabilise across the regional (-0.3% q-o-q), sub-regional (0.1% q-o-q), large format retail (0.1% q-o-q) sub-sectors in 1Q22 after consecutive quarters of declining. Both neighbourhood and CBD rents were under downward pressure this quarter, recording declines of -1.0% q-o-q and -3.5% q-o-q, respectively.
Outlook: Elevated inflation creating uncertainty for investors
The reduction of government stimulus in 2022, ongoing supply chain disruptions and higher inflation has increased uncertainty for investors and retailers. Additionally, the Commercial Leasing Code of Conduct mandating rent relief and eviction protections, ended in 1Q22.
Continuous supply chain disruptions caused by the ongoing pandemic and current geopolitical tension is expected to keep inflation elevated through the rest of 2022. These inflation pressures will potentially drive higher interest rates, which would likely have a negative impact on retail spending and investor confidence.
Note: Melbourne Retail refers to Melbourne's overall retail market.