Australia's retail sector in 2026 continues to navigate the structural shifts in consumer spending that have been accumulating since 2022. Discretionary retail — clothing, homewares, electronics — has been under particular pressure as household budgets have been compressed by higher mortgage costs and cost of living increases. The practical consequence for commercial landlords is persistent retail lease arrears across some tenant categories, with vacancy rates in secondary retail locations rising.
The current arrears environment
Across major retail precincts in the eastern states, arrears in the hospitality, fashion, and lifestyle categories are the most common. Large anchor tenants with national covenants generally remain current. Smaller specialty retailers, particularly independent operators in their first three to five years of trading, represent the highest concentration of arrears. In some suburban and regional centres, the combination of lease expiries not being renewed and defaults mid-lease has created material vacancy.
What the Retail Leases Acts require
Each state has retail leases legislation that imposes specific requirements on landlords pursuing arrears or terminating leases. Key provisions include:
- NSW (Retail Leases Act 1994): landlords must provide a formal breach notice specifying the breach and a 14-day remedy period before proceeding to termination. Re-entry must comply with the procedural requirements.
- Victoria (Retail Leases Act 2003): broadly similar requirements, with VSBC (Victorian Small Business Commission) mediation available as a first resort for lease disputes.
- Queensland (Retail Shop Leases Act 1994): formal notice requirements apply, and the Queensland Retail Shop Lease Dispute Resolution Centre provides a mediation pathway.
Failure to comply with these procedural requirements can expose a landlord to a claim for wrongful eviction, even where the tenant is genuinely in arrears.
Practical options for landlords
When a retail tenant is in arrears, the practical options available (after formal notice) include: calling on the bank guarantee or security deposit; agreeing a rent deferral or reduction for a defined period in exchange for a longer lease term or other consideration; pursuing the arrears through debt recovery proceedings; or proceeding to re-entry and termination.
In the current environment, many landlords are finding that negotiated arrangements — temporary rent reductions or deferrals tied to improved trading performance — produce better long-term outcomes than immediate termination. A vacant tenancy in a soft retail market may take 12–24 months to re-let, and the carrying costs during vacancy can exceed the arrears amount being disputed.
Contact Merion if you are a commercial landlord managing retail lease arrears and want advice on the recovery and negotiation options available.