From beds and sheds to bricks and clicks - the rise of retail in 2025

Residential prices surged in most markets driven by strong population growth and limited supply, pressuring rents and vacancies. While build-to-rent, co-living, and student accommodation garnered attention as potential solutions, development remained limited. Hotels also contributed to the "beds" story, with strong tourism and investment demand persisting.

Industrial remained the golden child of commercial investment, with logistics assets seeing significant value appreciation during the pandemic. While cap rates have softened, strong rental growth sustained positive capital value movements until early this year. Recent MSCI data shows this shifting landscape - industrial recorded a 0.9 per cent total return improvement in September 2024, marking the second consecutive quarter where it hasn't led returns. The smaller private investor and owner-occupier market has remained resilient, with businesses using self-managed super funds to secure their accommodation future, while investors sought to revitalise vacant assets and value through renovation to attract new market rents.

The dominance of industrial is clear in the numbers - it represented up to 60 per cent of all major commercial deals (office, industrial, retail) during 2023, averaging 54.7 per cent during 2020-2023, though falling to just 50 per cent this quarter. Meanwhile, office transactions declined dramatically, representing just 9.2 per cent in the first three quarters of 2024, particularly impacted by the lack of prime CBD assets changing hands.

As office demand wanes and industrial returns moderate, we've seen a decisive pivot toward retail assets. Despite widely publicised predictions of brick-and-mortar retail's demise even before the pandemic, the sector has shown remarkable resilience. While per-capita retail trade has decreased, limited new supply against strong population growth has driven improved occupancy and rental performance in select markets. Retail assets have led total returns for two consecutive quarters, posting a 2.8 per cent total gain in the latest results. Metropolitan assets have outperformed regional locations, with secondary assets surprisingly yielding stronger income returns than prime properties.

Attention is firmly fixed on neighbourhood and sub-regional centres, demonstrating particular resilience when anchored by the right retail mix. Food, supermarkets, and services continue to dominate consumer spending, attracting investor interest. For the first time, retail transactions now represent 41.1 per cent of all commercial transactions this quarter - a rapid shift reflecting renewed confidence in the sector after a long term average of just 28 per cent.

While online retail persists as a consideration, it accounts for just 11.4 per cent of all retail spending and has remained relatively stable over the last few years. Though November typically sees spikes in online activity due to Black Friday and Click Frenzy events, and certain (non-food) categories like clothing and homewares have embraced e-commerce, overarching physical retail results remain robust. Worth watching however has been the growing second-hand and influencer marketplace, particularly through social media platforms, Facebook Marketplace activity growing 3.6 per cent annually.