The Australian retail sector in 2025 presents a compelling opportunity for buyers as market fundamentals strengthen. Stonebridge’s findings on the half-year 2025 REIT results show that for the first time since mid-2022, portfolio capitalisation rates have begun to tighten, signalling a shift in sentiment. Positive leasing spreads persist, particularly in the Large Format Retail (LFR) sector, while sales growth in non-discretionary retail and leisure remains strong. Additionally, the discount to Net Tangible Assets (NTA) is closing, reflecting an increasingly optimistic investor outlook.

Key Themes Shaping REIT Strategies

1. Capitalisation Rate Tightening 

Capitalisation rates have begun to tighten for the first time since June 2022. Several REITs recorded cap rate compression from prior period – the first time this has occurred in over two years. 

Source: Stonebridge Research
 

2. Strategic Divestment of Non-core Assets & Enhancement of Key Assets

Net divestments were recorded across most REITs as they focused on retaining and improving core property holdings. Redevelopment and revitalisation of key assets remain central to REIT strategies. Leading players are prioritising premium retail destinations to drive long-term resilience and performance. A notable example is Vicinity placing an emphasis on strengthening its flagship assets in Chadstone and Chatswood Chase

3. Capital Deployment Accelerating in 2025

With strengthened balance sheets and improving sentiment, REITs are set to deploy new and pent-up capital throughout 2025. Both local and international investors are actively pursuing mandates across multiple retail subclasses. 

4. Leasing Spreads Maintain Positive Momentum, LFR Leads the Way

Leasing spreads remain positive across all major REITs, highlighting strong tenant demand, resilient rental growth and demand supply imbalance. LFR continues to outperform, benefiting from evolving consumer preferences, reduced supply, and a low rental base.

5. Steady Retail Sales Growth with Non-Discretionary and Leisure Leading

Retail sales have held steady, with non-discretionary retail and leisure categories outperforming. Consumers continue prioritising essential spending, while leisure-related expenditures remain robust amid improving economic confidence.

6. Discount to NTA Continues to Narrow

Improved investor sentiment has led to a reduction in discounts to NTA across most REITs. In many cases, the spread has now fallen below 20%, signalling a more optimistic outlook for asset values.

2025: A Prime Year for Retail Investment

Stonebridge concludes that the 1H25 reporting season reflects a broader positive shift in the retail investment sector, underpinned by renewed capital deployment, positive leasing spreads and improving investor confidence. Looking ahead, 2025 presents a window of opportunity as both local and international investors reallocate capital into the sector, buoyed by improving economic conditions and a more optimistic outlook for asset values.

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