2025 Retail Outlook with Head of Portfolio (Retail), Sam Curry

Head of Portfolio (Retail) Sam Curry provides his 2025 retail outlook as part of the annual Shopping Centre News review.

Enex is currently undergoing a $40m redevelopment to create Perth's first urban commercial village in the centre of the CBD.

ISPT's IRAPT fund acquired new asset Woolworths Clarkson in 2024, as part of its strategy to reinvest capital into high-quality neighbourhood centres strategically located within key geographic hubs.

ISPT joined global private markets manager IFM Investors in December 2024, adding real estate as a fifth asset class to the IFM platform.

ISPT announced an industry first partnership with CSIRO to understand ISPT’s relationship to nature and how biodiversity can be further supported through priority actions.

ISPT was awarded the first ever CAF Gold Portfolio Rating as part of a pilot towards portfolio certification with the Cleaning Accountability Framework, to elevate responsible procurement, promote fair labour practices and showcase industry leadership.

ISPT’s Head of Portfolio (Retail), Sam Curry, recently provided Shopping Centre News with his outlook for 2025, as part of the publication’s annual Retail CEO Outlook.

Read on as Sam reflects on the key insights and opportunities facing the retail sector, and ways ISPT is continuing to create value for investors over the year ahead.

2024 year in review

When I reflect over the past 12 months across the retail market, I am often drawn to the word ‘stability’. Stability in sales, stability in occupancy, stability in rental growth and stability in customer visitation. In what was expected to be a year of some uncertainty across the retail market as the economy stalled and consumer spend was predicted to dry up, we saw positive performance across most key metrics in our portfolio of more than 70 retail assets.

Early commentary in 2024 around a possibility of increased retail closures through the year proved incorrect as most retailers managed to work through and improve operational efficiencies and focus on core customer needs. We did, however, see mainly independent operators succumb to increased operating costs and have to close stores while most national branded retailers, having well-established balance sheets, were able to push through any financial issues. Mosaic Group was the exception, having moved into administration in 2024. This was perhaps the only real significant closure event through the year.

Capital flows into retail also improved through 2024 with transactions up 35% from the prior year. 2024 was a year of recovery for the market with privates and syndicators the most active on the buy side. This likely signals at or near the bottom of the market with improvement expected into 2025. Institutions and listed groups were the most active on the sell side through 2024, accounting for about 70+% of all transactions. A need to pay down debt, re-weight portfolios and recycle capital into more accretive activities were the key reasons for the heavy divestments. As the bond market softens, this may create opportunity for these investors to revisit the retail market and become more a net buyer than net seller across the coming 12-18 months.

Into 2025

Coming off a sound base in 2024, we see further improvement into 2025. We expect sales to grow from +2.2% MAT for the CY2024 to about +3.5% for CY2025 off the back of interest rate cuts flowing through from mid-2025. Leasing spreads are expected to remain in positive territory. As rents were re-based pre and through COVID, growth started to filter through from mid-2023 at about 1-2% p.a. and is now sitting at about 4-6% p.a. This should start to positively impact valuation metrics.

As the macro economy is expected to improve through 2025 and sales grow, we expect retailers to be more active with store expansions over the coming years. This should improve occupancy rates across our portfolio and start to shift them close to 98% occupied with some better located assets at near 100%.

With a limited supply of new retail assets on the horizon, existing centres should benefit from the increased population growth forecasts at about 1.5% p.a. over the next seven years. This may assist with increased competition for capital for retail assets given the certainty of cash flow and strong yields currently on offer.

We still believe the non-discretionary retail centres are well-placed to capture improved trading conditions into 2025 as consumers continue to shop more locally and utilise these centres as regular meetings places. As these smaller assets also continue to diversify their offers and income streams to include services such as medical and allied health, we expect the appetite for capital into this asset class will grow further.

A new era for ISPT

For ISPT, 2025 will begin a new phase of its business journey. Having completed a merger at the end of 2024 with IFM, a $220 billion global institutional investment manager, owned by industry super funds, it will be an exciting next 12-24 months for the business. Partnering with a like-minded and purpose driven business, being able to share and utilise a much-expanded business network, should only improve how we operate and run our assets, and increase our capital and investment opportunities across the property market.

Our sustainability credentials are global leading

2024 capped off another milestone year for ISPT on the sustainability front. Our continued focus and investment into this space is helping drive improved operational efficiency, creating better futures and very much aligning with our investors’ growing appetite to genuinely impact and improve our environment.

Key highlights for the business were:

The continued success of our convenience-based fund

Our neighbourhood-based shopping centre fund (IRAPT) which was born from a seed partnership with Coles has continued to outperform the index while at the same time growing in the number of assets and value. Now at over 50 centres with a fund value of $2.7 billion, the fund acquired six new retail assets in 2024, taking advantage of good buying in the market and the stable cash flows achieved from these neighbourhood-based assets.

Over a 10-year period, the fund has delivered an 8.10% total return compared to the retail index of 2.85%. We see further opportunity to place more capital into this retail space through 2025 and are well supported by our investors to grow the fund further. We anticipate the next 12-18 months will be very active for IRAPT.

Future developments

While the construction market remains challenged, the retail portfolio has some exciting project opportunities over the coming few years to explore.

We are looking to deploy significant capital across eight assets, to enhance our existing offer, update our amenity and provide our customers with an elevated experience. We are excited to be able to present these to the market in due course.

As we work on these developments, we have also been actively recycling capital through the portfolio. In 2024, we divested six retail assets at about $415 million some of which was utilised to acquire additional retail assets to continue to reset the portfolio. We will continue with actively reshaping the portfolio to deliver enhanced returns to our investors.

As a property business, and within our retail team, we are excited for what 2025 holds for the retail market and our relationships with our retail partners. As an industry we have collectively faced some challenging years and we look forward to building on the stable market conditions that we started to experience in 2024. We see many opportunities and believe it is a great time to be working in the retail property sector.