Neighbourhood centres to dominate Melbourne retail supply this year

Over half of projects scheduled for 2026 completion are neighbourhood centres.

Neighbourhood shopping centres are set to dominate Melbourne’s retail development pipeline in 2026, accounting for the majority of upcoming completions, according to a report from JLL. JLL highlights that eight out of 14 projects scheduled for delivery in 2026—totalling approximately 136,257 sqm—will be neighbourhood centres, underscoring a shift toward convenience-led retail formats.

JLL notes that this pipeline comes amid continued supply constraints across larger formats, with new regional and sub-regional centre developments expected to remain limited to refurbishments and extensions through to 2028. The emphasis on neighbourhood centres reflects evolving consumer preferences and the resilience of daily-needs retail.

The outlook builds on solid market fundamentals observed in the second half of 2025. JLL reports that vacancy declined across most Melbourne retail sub-sectors, with the exception of sub-regional centres and the CBD. In the CBD, rising vacancy was primarily driven by strip retail rather than enclosed shopping centres.

Large Format Retail (LFR) continued to outperform, recording the lowest vacancy rates across all sub-sectors for a second consecutive quarter, according to JLL. The firm attributes this to strong consumer demand and a diverse tenant mix that has supported consistent occupancy.

On the supply side, JLL recorded five retail completions totalling 35,800 sqm during the fourth quarter of 2025, including the AUD 50 million redevelopment of 260 Collins Street, now rebranded as Collins Arcade.

Rental growth also gained momentum, with JLL noting increases across LFR, neighbourhood, CBD prime and regional centres. LFR led the market for the second consecutive quarter, with rents rising 2.0% quarter-on-quarter and 4.47% year-on-year. At the same time, yields tightened in key segments, with sub-regional yields compressing by 25 basis points and neighbourhood yields by 12.5 basis points in Q4 2025, reflecting sustained investor demand.

Looking ahead, JLL expects the concentration of neighbourhood centre completions alongside tightening vacancies and rental growth to reinforce Melbourne’s retail sector resilience into 2026.