In the 12 months to July 2014, retail trade in Australia totalled $274.4 billion of which $15.6 billion was spent online during the same period.

National Australia Bank’s latest Online Retail Sales Index reported sales growth of 8.6% in online sales in 12 months to July 2014, whereas overall retailing grew by 4.7% according to the Australian Bureau of Statistics.

Online sales now account for 6.6% of total retail spending, up from 6.3% as at July 2013. Online retail sales are dominated by Department Stores which accounted for 34% of total online spending, followed by the Homewares and Appliances (16%) and Groceries and Liquor (15%). In contrast, spending within traditional retailers is dominated by Food retailing (41%) and Household goods retailing (16%).

The increase in retail spending growth reflects the impact of record low interest rates on consumers and a lift in household wealth flowing through from higher asset price. Positive sentiment and increasing house prices directly impact on how wealthy consumers feel and in turn their propensity to spend. The large gains in house prices recorded during 2013 (particularly in Sydney +14.5%, Perth +9.9% and Melbourne +8.5%) have been reflected in strong retail turnover in these markets.

Within Victoria, retail sales spiked in the final quarter of 2013, to be above the 10-year average for the first time since April 2011. In the 12 months to July 2014, retail sales in Victoria increased by 6.5% driven by increased sales in café and restaurants.

Melbourne’s infamous retail strips continue to toil the soft levels of retail spending as vacancy rates rise however some of Melbourne’s prime strips defied the retail downturn with limited vacancies. In particular, Bridge Road in Richmond, has reached record high vacancy levels, impacted by the emergence of DFO centres and growth of retail space within the CBD itself. Whilst vacancy levels across Melbourne’s prime strips is up to 10-year highs, the outlook for many of these prime retail strips is positive, with many new apartment developments coming on stream adjacent to these popular shopping precincts, boosting the surrounding local population and thus demand from consumers and occupiers alike.

Elsewhere, Melbourne’s CBD retail market remains relatively tight with vacancy below 5% despite the opening of the Myer Emporium which added 225 shops to the market. The CBD remains relatively insulated to some degree, given that it is the preferred destination for international retailers. Recent additions to the Melbourne CBD retail market include, Thomas Pink, Fred Perry and Dolce & Gabbana. While with domestic growth prospects stalling for many North America and European retailers, the relative strength of the Australian economy has driven many overseas retailers with H&M, Uniqlo and Abercrombie & Fitch amongst some targeting new shops in the CBD.

With discretionary spending still soft and consumers cautious, retail trade conditions are likely to be restrained which is likely to dampen any rental growth over the next 12 months with the exception of absolute prime locations. As highlighted by Westfield’s recent company results which revealed that new incoming tenants in Westfield’s Australian shopping centres are enjoying 6% to 7% lower rents than existing tenants looking to renew contracts.