Despite the weak environment for retail sales, Australia remains an expensive place to rent a shop at the upper end of the market, with Sydney, Melbourne and Brisbane ranking among the most expensive retail locations for super prime space in the world.
On a global basis, rents for super prime space throughout the world increased by a modest 0.8 per cent in the first quarter of 2012 as subdued economic conditions continued to impact the market, according to the latest research from CBRE International.
Driven by strong demand in a handful of US cities such as Washington, Miami and Seattle, the Americas region led the way, recording growth of 3.4 per cent during the quarter.
Rents also rose by a modest 0.5 per cent in the Asia Pacific region thanks to continued demand from international and luxury retailers, while those in Europe dropped by 0.2 per cent as weakness in markets such as Athens and Belgrade continue to reflect difficult economic conditions.
In Australia, while rents for super prime space in Melbourne are up 20.8 per cent over the past year, subdued retail conditions have seen rents fall 14.7 per cent in Sydney and 15.3 per cent in Brisbane, which recorded a steeper drop throughout the year than any other city in the world’s top 40.
Still, Australian retail space remains expensive on a global scale; with average annual rental charges per square foot for super-prime space of $US1,112 ($A11,560), $US837 and $US639 respectively, Sydney, Melbourne and Brisbane remain the third, seventh and eleventh most expensive places in which to operate a retail outlet in a super prime location.
Referring to the stellar market performance in Melbourne, Stephen McNabb, CBRE’s head of research in Australia, says conditions in the city reflect underlying competition from new foreign retailers for the more limited supply of super prime retail space, though he says that Melbourne’s strong performance relative to Sydney is unlikely to continue in the near future.
“Rent levels in the upper tier of the market are still lower in Melbourne than in Sydney which may have given room to manoeuvre for retailers wanting exposure to a prime strip in what has been a stronger retail market,” McNabb said. “Going forward, we expect the underlying pace of growth in rents between the two cities is likely to narrow, as retail sales fundamentals take over, easing in Melbourne more recently, while improving in Sydney.”
Still, Sydney is unlikely to catch up with the world’s top two anytime soon: super prime shop rental prices in the New South Wales capital are less than one third of what they are in Hong Kong ($US3,864 per square foot per annum) and less than half those of New York ($US2,475 per square foot).
Throughout the world, CBRE global chief economist Ray Torto says upscale retail markets have showed more promising signs of late.
“Overall, this quarter has seen more positive aspects than the last; with improved consumer spending as well as steady occupier demand and new shopping centres bringing benefits to emerging markets,” Torto says. “Despite concerns over the Eurozone and a slowing world economy, retailer demand for prime space in major cities remains strong; however, prime space is in short supply in many markets. This mismatch between demand and supply means that activity levels are not as high as they could be. Equally, retailers continue to target the best locations in the more mature markets of Western Europe and the wealthier markets in the Asia Pacific region.”
Torto says cross-border retailing is becoming increasingly prominent as middle class populations grow in emerging markets and retailers from more mature markets seek new opportunities for growth.
He says growth in demand for modern, quality retail space in these markets has underpinned a rapid expansion in shopping centre development which is making it easier for retailers to enter these territories.