Melbourne Retail Market Dynamics Q2 2026

• Household spending indicator increased by 5.2% over the year to May 2026. This remains above the 10-year average growth of 4.7% per annum.
• Vacancy rates tightened across all Melbourne retail subsectors, with Large Format Retail (1.1%) and Neighbourhood centres (2.4%) now the tightest markets nationally.
• Commercial real estate in 2026 YTD was dominated by private investors across Neighbourhood and Large Format Retail assets

Food (AUD 47,400 m) and household goods (AUD 21,700 m) made up 56% of Melbourne's retail trade over the 12 months to May. Household goods are supported by a growing population and consistent new home completions. In Q2 2026, due to global conflicts, some retailers had experienced supply chain headwinds, particularly in freight transportation, logistics, and increased energy expenses.

LFR vacancy hit a record low 1.1%, driving 8.8% YoY rental growth. Nationally this thematic was consistent at 2.3% average vacancy and 5.6% average rent growth. Diverse, often publicly-listed tenants deliver reliable cashflows and foot traffic throughout the week. In Q2 Epping Hub completed their 4,500 sqm refurbishment-extension. In Q4 four new Neighbourhood projects will complete, adding 26,900 sqm of daily needs retail space. Completions are concentrated in northwest population growth corridors.

The largest Q2 sale was CBD asset Midtown Melbourne, transacting for AUD 154m from IFM to Coombes Property Group. Major tenants include Telstra, HSBC, Chemist Warehouse, Daiso and W-Cosmetics. MUJI will replace Telstra in 2027 with a three-level flagship store. Australian retail yields remained broadly unchanged over the quarter as capital assesses recent macroeconomic shifts, namely higher interest rates. Melbourne's weighted average yields range from 5.5% (Neighbourhood) to 6.25% (Large Format Retail).

Global inflation will likely rise further in 2026 due to supply pressures and geopolitical tensions, with reprieve delayed until 2027. Tight labour markets have provided the necessary policy space for central banks in advanced economies to hold or raise interest rates. Melbourne Regional, Sub-regional and Neighbourhood yields are forecast to remain stable, while rents continue to increase.