The investment opportunity in Australian retail property: a post-pandemic perspective

Purpose The COVID-19 pandemic and subsequent rapid increase in interest rates have drastically altered the performance profile of commercial property, making it more important than ever for institutional investors to reassess the role of retail property in their portfolios. This paper examines the performance attributes of Australian retail property by assessing its risk-adjusted performance, diversification benefits and portfolio role relative to other major asset classes across the pre-pandemic, pandemic and post-pandemic periods. Design/methodology/approach The analysis uses the MSCI/PCA quarterly dataset for Australian direct retail property over 1990–2024, with returns de-smoothed and segmented across state location, regional designation and asset quality. Annualised returns, risk and Sharpe ratios are assessed for the full period and for the three sub-periods. Both inter-asset and intra-retail property correlations are then used to assess diversification potential. Finally, a constrained mean-variance portfolio framework is applied to a six-asset composition comprising stocks, bonds, listed property, retail, office and industrial property. Findings In the full-period analysis, retail property delivers competitive risk-adjusted performance compared with both office and industrial property and other asset classes, with particularly strong Sharpe ratios in the pre-pandemic period and a clear recovery in performance in the post-pandemic years. Correlation results indicate that retail offers meaningful diversification benefits, exhibiting only moderate co-movement with other direct property sectors and relatively low correlation with stocks and listed property. The optimum asset allocation analysis sees industrial property dominate the 10% direct property allocation. Retail property features prominently in higher return-risk pre-pandemic portfolios, contributed by its superior risk-adjusted performance and diversification profile during this period. Practical implications This study reinforces that Australian retail property is an investable, portfolio-relevant segment of the property asset class. Retail property adds the most value when it provides a distinctive risk-return trade-off that is not easily replicated by stocks, bonds or other property sectors. Thus, while retail property remains relevant to investment portfolios, future performance will be increasingly influenced by factors such as active management, format selection and vehicle selection. However, it is important to go beyond traditional performance metrics to gain a deeper understanding of the fuller strategic role that retail property plays within a portfolio. This broader perspective is important to fully understand retail property's long-term value and contribution to diversification. Originality/value While this is not the first study to analyse Australian retail property as an investment asset, it extends earlier work by using a much longer and more recent MSCI/PCA retail property series, providing sub-period analysis across the pre-pandemic, pandemic and post-pandemic timeframes. The results provide updated evidence on how Australian retail property can add value in mixed-asset portfolios in a post-COVID environment.