Melbourne’s Shopping Strip Investment Market Bounces Back
Melbourne’s shopping strip investment market bounced back strongly in the closing months of 2024, and is set for a bigger year in 2025 as Australia nears an interest rate cutting cycle and more investors become more active, according Fitzroys’ Melbourne Shopping Strip Investment Market Update.

The recent flurry of activity culminated in a record sale for Melbourne’s renowned Glenferrie Road, Malvern shopping strip. Fitzroys sold 222 Glenferrie Road for $3.2 million, at what is believed to be a record land rate for the strip of $16,667/sqm.

The property, occupied by an Australian Red Cross op-shop and a residence, sold after an offshore investor sourced through Fitzroys’ investor database put forward a knockout offer prior to the scheduled auction.

Mark Talbot, Fitzroys Director - Agency, said the private investor was seeking a securely- leased asset in a blue-chip shopping strip.

“We’re seeing more investors turn to quality Melbourne shopping strip assets for security at a time of share market and residential market volatility,” he said.

“This result is yet another great sign of the health of the market, and follows a number of strong outcomes through spring and into summer.”

Fitzroys sold a number of Melbourne shopping strip assets prior to auction in a matter of weeks. As well as the Glenferrie Road property, they also included home of Lygon Street, Brunswick East’s famous “The Beast” bar, burgers and bands venue within just 21 days of the property being put to the market, for $3.75 million, as well as 452 & 452a Centre Road, Bentleigh, occupied by a butcher, for $2.1 million and on a sharp yield of 3.6%.

“Investors are becoming increasingly bold,” Talbot said.

“There is an expectation that rates will be reduced some time this year which has provided motivation to purchase in the last half of 2024 and into 2025. We have plenty of buyers looking to get in ahead of the curve.

“Interest rate reductions could really see market activity surge.”

The Reserve Bank of Australia (RBA) has held interest rates at 4.35% for more than a year. Most economists are forecasting a cut of at least 0.25 basis points in 2025, with all four major banks tipping that to arrive in the first half of the year. The Federal Government’s Mid-Year Economic Forecast and Outlook suggests inflation will sustainably return to the RBA’s target band of 2% to 3% by the end of this year. The latest data shows annual trimmed mean inflation has come down to 3.2%.

The RBA board’s first interest rate meeting for 2025 will be held over 17 and 18 February.

Yields To Tighten In 2025
Yields are expected to tighten in 2025, as a result of the potential interest rate cuts and a deepening of the investor pool providing for greater competition in campaigns.
Retail yields for the first six months of 2024 on average pushed out close to 4.5% and for larger assets, close to 5%. Talbot said the potential rate cuts in 2025 would mean more investors start to look for yields closer to 4% from reliable assets more regularly.

“Prime assets in Melbourne’s shopping strips are offering excellent investment credentials,” he said.

“The strips are experiencing a real period of renewal at the moment. Vacancies remain close to historical lows as Melburnians spend more time than ever at their local villages, supporting trade.

“We’re also seeing a number developments on and around the strips reaching completion and in the pipeline which are underpinning future trade prospects.”

According to Fitzroys’ most recent annual Walk the Strip report, vacancies across Melbourne’s strips are at just 6.3%, remaining close to long-term lows.

“We’ll continue to see investors put their faith in high-quality income-producing bricks-and- mortar assets,” Talbot said.

“As well as investors being more active and aggressive in the market, we’re also expecting to see a deeper pool of buyers in 2025. Market participants who have sold out of residential investments could be big players in the retail strip investment market this year.

“These investors would be searching for opportunities with strong lease profiles and where yields are stronger than residential assets.”

Fitzroys recently sold 27a Anderson Street in Yarraville, occupied by global franchise Zambrero, in which case a seven-year lease proved very attractive despite the property being strata-titled, Talbot noted. The sales campaign attracted aggressive bidding from four groups on auction day and the property sold $1.615 million, some $115,000 above reserve, and on a tight 4.2% yield.

Melbourne’s shopping strip market continues to attract local investors, investors from across the country, and overseas-based and -backed investors, particularly from Asia.

“The addition of these former residential investors to the market will create more competitive sales campaign environments.”

Talbot said investors still often look at strip investments as a long-term play.

“These are often 20 and 30-year generational investments, and investors know that there will be both bumps and better times along the way.”

Talbot said, “In addition, Melbourne has been traditionally insulated from geopolitical happening and unrest overseas. Investor sentiment has also clearly been lifting, and we expect the strip market to weather ongoing political and economic shifts and challenges around the world.”