Retail Sector Recovery

CBRE's analysis reveals a positive trend in super prime retail rents in Australia's CBDs, signaling a gradual return of shoppers to city centers for retail therapy, except for Melbourne.

These rent increases are the first recorded since the pandemic began. Sydney witnessed the highest super prime rents during the second quarter, with a 1.5% quarter-on-quarter rise to $10,944 per square meter. Adelaide experienced the most significant jump of 7.4%, reaching $3,275 per square meter, while Brisbane also saw a substantial increase of 7.2% to $3,595.

Leif Olson, CBRE's Australian retail leasing director, interprets these Q2 results as an indication that retail rents may have reached their bottom across most CBD markets and are now on an upward trajectory, particularly for super prime assets. He attributes this positive trend to increased tourist numbers and the influx of new retailers, especially in Sydney. Data from the Australian Bureau of Statistics shows an 80% year-on-year increase in short-stay overseas visitor arrivals in May, partially recovering from the pandemic's impact.

Sydney's successful hosting of events like Vivid has drawn people back to the city, benefiting the retail market. Luxury brands are capitalizing on this momentum by relocating to more central stores in Sydney's Pitt Street Mall.

In contrast, Melbourne experienced a contraction in its super prime retail rents, declining by 7.4% quarter-on-quarter to $6,250 per square meter. This was primarily due to a slower CBD return and ongoing mall renovations. However, Mr. Olson anticipates a rebound in Melbourne's retail rents within the next three to six months due to rising demand, as retailers express interest in opening stores in these locations.

Overall, beyond the top-tier retail market, average net face rents in CBDs across all states have remained relatively stable quarter-on-quarter, with slight changes in Greater Sydney and Greater Brisbane. This overall stability indicates a positive outlook for the retail sector as it continues to recover from the impacts of the pandemic.

Source: https://www.afr.com/property/commercial/cbd-retail-rents-rise-for-the-first-time-since-pandemic-20230725-p5dr03