International luxury brands drive up demand for retail space in Melbourne and Sydney CBDs: HTW

International luxury brands drive up demand for retail space in Melbourne and Sydney CBDs: HTW
International luxury brands drive up demand for retail space in Melbourne and Sydney CBDs: HTW

The Melbourne and Sydney prime CBD retail markets continue to perform strongly, driven by luxury international retailing brands seeking spaces for new stores, according to the April Herron Todd White (HTW) Report.

The two CBD markets are outperforming retail property in their respective suburban markets, with a two-speed retail market in evidence in both cities.

HTW valuers quote “industry sources” as saying vacancies in the Melbourne CBD are at record lows, “driven by population growth and a substantial amount of residential development, particularly in the northern CBD in the university precinct”. 

“Super-prime rental levels (i.e. Bourke Street mall) now sit in the order of $5,000 per square metre to $8,000 per square metre, and the location is not showing any signs of slowing, with Zara, Steve Madden and Swarovski entering into new lease agreements. 

“Rental levels within prime retail strips (i.e. Swanston Street) have risen a reported 5.1%, while secondary CBD retail rentals have risen a reported 8.11%.” 

A separate March 2012 report by CBRE says the Melbourne CBD has a current vacancy rate of 2.53%, just ahead of Sydney at 3% and Brisbane at 7.2%.

CBRE says vacancies are particularly tight in Melbourne laneways (just 1.6%) but have eased in some streets including Lonsdale, Elizabeth, Collins and Little Collins streets.

According to CBRE commercial agents Max Cookes, who along with Zelman Ainsworth recently negotiated the lease of a fourth location for Melbourne-based fashion label Life with Bird on Flinders Lane, the Melbourne CBD retail core remains a highly sought-after market, particularly by international retailers.

“We are in the process of concluding more than five retail leasing deals with international retail tenants in the Melbourne CBD. The tenants include international jewellers, fashion and accessories, home-wares, luxury brands and even international hospitality groups. 

“The level of enquiry we have received is stronger than this time last year. While a number of discretionary fashion retailers are experiencing weakened trade conditions, in the CBD it seems there are always retailers lining up to fill empty space,” says Cookes.

HTW says the Melbourne CBD market is characterised by a lack of supply, which has driven demand for retail space in the CBD. 

“There is minimal new / expanded retail development expected in 2012, with the only substantial retail development being ‘the corner’ at Melbourne Central, which is now complete. 

“‘The corner’ is located on the second level of Melbourne Central and is home to a mix of international and local fashion retailers. 

“Despite this development, new supply of retail space remains constrained and is expected to remain this way in the short term,” says HTW. 

The next big influx of new CBD retail space is not scheduled until 2014, when redevelopment of the Myer Lonsdale Department Store will be complete, providing a further 200 new retail outlets and 42,250 square metres of retail space. 

Most recently the attractiveness of prime retail CBD space was seen in the sale of the Telstra premises on the corner Collins and Swanston streets, one of the busiest pedestrian corners in Melbourne, ahead of auction. 

The 65-square-metre shop was snapped up for $9.25 million by a private investor, with CBRE commercial agents Josh Rutman, Mark Wizel and Max Cookes receiving a number of good offers prior to the schedule March 22 auction culminating in an “auction before the auction”. 

In the Sydney CBD, HTW says continued white-collar employment growth and the rejuvenation of the premium Pitt Street mall (ranked fourth most expensive retail strip in the world by Cushman & Wakefield) has caused demand from international and premium retailers to increase. 

“Since the start of 2011 we have seen the opening of the Louis Vuitton store on George Street, the expansion of the Hugo Boss store on King Street and the opening of Burberry on George Street. 

“These high-end retailers who are hoping to increase their presence throughout Australia, have been seeking locations which offer more than a simple shopfront,” says the valuation firm. 

“In the case of Louis Vuitton, the fashion label committed to a complete refurbishment of the former Blacket Hotel, to create a premium two-storey retail destination. 

“Likewise the Burberry flagship store occupies the heritage-listed 343 George Street. With internet retailing now firmly at the forefront of every retailers mind, we expect that luxury retailers will continue to build on ‘the retail experience’ in a hope to attract consumers into their stores.” 

However, outside of the Sydney CBD HTW says there is weaker demand, which has resulted in an increase in vacancy and a subsequent fall in rental rates. 

“Rental rates for properties in traditional prime locations have fallen the most, as retailers with falling turnovers struggle with higher occupational costs,” says HTW.

Photograph of Burberry's Sydney store courtesy of Flickr.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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