Retail Property in 2026 Where Stability Meets Selectivity

Australian retail property has moved into 2026 in better shape than it was a few years ago, but the recovery story is far from straightforward. Values and rents have largely reset after the corrections that occurred from 2022 to 2023. The retail market looks comparatively strong against office and parts of the industrial market, with its relatively stable yields, improved income metrics and solid consumer demand, which is underpinning investor confidence. This asset class appears to have worked through the significant repricing that occurred over the past few years and is now often highlighted as a strong performer on total returns and transaction activity, particularly in convenience-focused formats. Investor decision-making will be shaped by the interaction between a “higher for longer” cash rate, resilient yet patchy household spending and increasingly selective capital. The key issues for the year ahead are how the current interest rate setting, household spending and yield cycle will flow through to investor confidence and ultimately, the types of retail assets that trade.

Monetary policy appears to be one of the first constraints on investor optimism. At a macro level, the Reserve Bank’s February 2026 decision to lift the cash rate to 3.85 per cent closed the door on any near-term easing narrative, moving monetary policy clearly into restrictive territory. The February Statement projected trimmed-mean inflation to peak at about 3.7 per cent in mid-2026 and remain above the two to three per cent target band until early 2027 before moderating towards 2.6 per cent by mid 2028. Market forecasts similarly anticipate the cash rate staying near current levels throughout 2026 with only gradual normalisation thereafter. For retail investors, this reinforces a focus on the spread between asset yields and the risk-free rate, the robustness of tenant covenants and credibility of rental growth assumptions to compensate. Confidence will likely be strongest where retail assets can demonstrate a meaningful yield premium over cash and bonds, backed by durable income.

On the demand side, the ABS’ new Monthly Household Spending Indicator provides a broader lens on consumption than the now-retired Retail Trade series, capturing both goods and services using de-identified bank transactions and related data. Nationally, household spending rose one per cent month-on-month in November 2025 and was 6.3 per cent higher than a year earlier with spending increasing across eight of the nine published categories. Within the capital cities it appears households are still spending, but are making more deliberate choices and are increasingly directing discretionary spending towards services and experiences as well as essential retail.

In combination, the current 3.85 per cent cash rate, mid-single digit real household spending growth and adjusted retail metrics are likely to feed directly into what and where investors will buy in 2026. In the three largest eastern seaboard cities, the weight of capital is expected to stay around supermarket-anchored neighbourhood centres, convenience retail and large format assets with strong national or multi-national tenants. Prime assets in these categories are already seeing modest yield compression on the back of constructive household spending and improving leasing conditions. Secondary assets with short WALEs, exposure to weaker discretionary categories or high capex needs are likely to lag with yields remaining elevated to compensate for higher leasing or obsolescence risk.