Retail property is positioning itself as the standout performer for 2025, marking a significant shift from recent years where industrial assets dominated commercial property markets. Recent data shows retail assets have already begun this ascent, leading total returns for two consecutive quarters and posting a 2.8 per cent total gain in the latest results.

This rebound in retail property is particularly evident in transaction volumes, with retail now representing 41.1 per cent of all commercial transaction numbers in late 2024; a remarkable increase from its long-term average of 28 per cent. This surge comes as industrial sales, which dominated at 60 per cent of deals in 2023, have moderated to 50 per cent.

Despite ongoing discussion about the threat of online retail, physical stores have shown remarkable resilience. Online spending accounts for just 11.4 per cent of total retail transactions and has remained relatively stable over recent years. While certain categories like clothing and homewares have embraced e-commerce, and events like Black Friday drive online spikes, brick-and-mortar retail continues to demonstrate its enduring appeal.

The sector's strength is particularly evident in metropolitan markets, where assets have outperformed their regional counterparts. Notably, secondary assets have surprised by yielding stronger income returns than prime properties. Neighbourhood and sub-regional centres have proven especially resilient when anchored by the right retail mix, with food, supermarkets, and services driving consumer spending.

Looking ahead, several factors support retail's positive outlook. Limited new supply against strong population growth has driven improved occupancy and rental performance in select markets. The retail landscape is also evolving, with entertainment offerings likely to emerge as a key component of successful centres, creating lifestyle destinations rather than pure shopping venues.

However, the sector faces some headwinds. The growing influence of social media marketplaces, with Facebook Marketplace activity growing 3.6 per cent annually, and Australia's ageing demographic could reshape retail demands over the next two decades. These changes suggest successful retail assets will need to adapt to changing consumer preferences and needs.

As we move into 2025, while industrial assets remain an essential part of the retail ecosystem, investor attention is clearly pivoting towards retail assets. The sector's ability to adapt and evolve, combining traditional brick-and-mortar retail with emerging entertainment offerings and online integration, positions it as the commercial property sector to watch in 2025.