How did Australia’s retail property sector fare in Q3?

Vacancies and occupancy costs have improved.

According to a report by Dexus Research, rents across all centre types in Australia grew modestly in the year to Q3 2023, although Sydney regional shopping centre rents declined on an annual basis. 

Occupancy costs (ratio of rent to turnover) for some key specialty categories including clothing are now below the preCOVID average, indicating an improving value equation for retailers with implications for future growth. 

Here’s more from Dexus Research:

Shopping centre vacancy continues to decline. City retail vacancies stabilised but remain elevated. Steadily growing tourism and returning office workers should help improve occupancy. 

Retail yields have continued to expand over the quarter. Sydney regional and sub-regional shopping centre yields have risen between by 50bps year on year with neighbourhood yields rising by 63bps. While higher rates are influencing pricing, the quantum is less than pre-covid movements. Moving forward, cap rate rises for the retail sector are expected to be more modest than for the office and industrial sectors.