With real wages outpacing inflation, Australia’s retail sector is forecast to grow 3.5 per cent this year, signaling renewed confidence, according to Knight Frank’s research.
Alistair Read, Senior Economist for Research and Consulting at Knight Frank and author of the Australian Retail Review – April 2025 report, said that falling inflation, a tight labour market, and rising real wages are expected to drive a 2.2 per cent increase in personal disposable income.
If realised, this would mark the strongest growth in disposable income since 2021.
“Looking ahead, the outlook for retail sales is improving as some of the pressures on household budgets start to ease,” Read said.
“At the same time, ongoing wage growth will start to support consumers more meaningfully as it starts to exceed the pace of inflation, translating into growth in real incomes.”
Read said that younger consumers are expected to drive retail spending in 2025, with early indicators suggesting that year-on-year spending among younger consumers has already grown strongly in late 2024 and early this year.
“The increased cost-of-living over recent years had a more acute impact on younger consumers due to increased exposure to higher interest rates and rent prices,” Read said.
“As a result, younger consumers had the largest decrease in spending in 2023 and 2024.”
The report also noted that total investment volumes in the retail sector rebounded strongly in 2024 with $9.9 billion traded, up 39 per cent from the prior year, with shopping centres accounting for 79 per cent of the transaction volumes.
“The change in investment market conditions over the past two years has led to a significant shift in the composition of investors seeking exposure to the retail sector,” Read said.
In the first quarter of 2025, total retail investment volumes reached $2.9 billion, surging 29 per cent year over year.
“Investors are responding to the prospect of an improving economic climate, with reduced uncertainty around the outlook for inflation and interest rates removing the brake on deal activity.”
Meanwhile, Read noted that shopping centre owners are more focused on optimising performance of existing assets rather than expanding by developing new properties.
“State and federal government’s have recently emphasised the need for greater housing supply, largely focusing on the densification of housing in capital cities,” Read said.
“This is expected to strengthen the position of existing shopping centres through increasing the population with their catchment, raising both foot traffic and sales density.”