International retailers keep Sydney and Melbourne in top 10 most expensive global retail property markets

The Sydney and Melbourne CBDs have maintained their rankings among the top 10 most expensive markets to rent prime retail spaces as international retailers clamour to get access to Australia’s nation of shopaholics.

International retailers are looking to open around 300 shops in Melbourne, Sydney, Perth and Brisbane over the next few years, according to figures compiled by Colliers International in a new White Paper.

Top Shop, Zara, Gap and Apple are all looking to add to their store presences while the likes of Swedish fashion store H&M and Japan’s Uniqlo are all planning to open a swathe of stores in capital city markets.

Uniqlo, is leading the charge, seeking 40,000 square metres of space across 25 stores followed by Zara, which is seeking 30,000 square metres of space with plans for 20 stores and Top Shop (and its men’s store Topman) seeking 27,000 square metres across 15 stores.

Apple and Canada’s Lululemon Athletica both expect to reach around 30 stores each.

Sydney ranks as the fifth most expensive prime retail market in the world, charging on average $10,700 per square metre with Melbourne ranking eighth with an average prime retail rent cost per square metre at just under $9,000, according to the latest global rents report from CBRE for the fourth quarter of 2012.

Hong Kong is the most expensive prime retail market in the world – an incredible $46,000 per square metre – followed by New York at $31,400 per square metre.

Source: Colliers International

CBRE notes that in Sydney, demand from international retailers (especially from the US) is high with “many new brands set to enter the market in 2013”.

Josh Loudoun, CBRE’s head of retail services in Australia and NZ, says Australia remains “an attractive destination for international retailers.

“New openings are performing well and fuelling demand for additional stores with international groups continuing to express interest in prime CBD locations,” he says.

Loudoun says he is seeing significant interest from international groups looking to capitalise on the proposed changes to George Street, but Melbourne remains the ‘go to’ destination mostly due to the availability of prime locations on Collins Street and Bourke Street Mall.

“Australia continues to rank highly on the world stage for rent levels, which is supported by the shortage of prime locations, and Australian retailers achieving some of the highest profit margins in the world,” he says.

“We forecast this will continue despite the pressure of on-line retailing as new market entrants will continue to fight for prime locations.”

Nora Farren, researcher and author of the Colliers White Paper, notes that of stores already opened in Australia, there appears to be an even split between high Street and shopping centre locations, with Sydney and Melbourne the preferred markets.

The average store size requirement is around 800 square metres, but ranges from just 150 square metres for boutique stores to 2,000 square metres for department stores.

The majority of international retailers entering Australia come from the fast fashion and general apparel sectors with the retailers identifying Australian consumers retailing appetite in the first instance from online sales, based on the value and volume of products being shipped to these stores.

US department stores Nordstrom, Saks Fifth Avenue, Macy’s and Bloomingdale’s all offer shipping to Australia, and openly consider the market as one of their biggest online customers

Farren says she does not expect to see many more large retailers in Australia, with most of the major chains already here, but expects that more specialist retailers will start coming in “certainly higher end fashion retailers, particularly the niche fashion retailers from Europe and US”.

“It remains to be seen if the Australian taste is sophisticated enough to embrace them,” says Farren.

The arrival of overseas brands is not good news for local retailers with less prime retail space available and many without the bargaining power to negotiate lower rents.

“The sophistication and bargaining power of these international retailers often means they pay less or will seek to pay less rent per square meter for the quality of space they occupy, and tend to commit to longer lease terms than local retailers.

“The criticism often levelled at centre owners by other tenants is that the rent of international retailers is being subsidised by other local retailers,” says Farren.

Dolce & Gabbana recently signed a lease for 320?square metres of the Mayfair Building on Collins Street in Melbourne, owned by Charter Hall and Cbus Property while Chanel, Prada and Apple have recently opened their first Perth stores.

UK brand Miss Selfridge will open a pop-up store within the Glue Store at Westfield Bondi Junction, before moving into stand-alone stores.

In its recent results filing Challenger Diversified Property Group said the lease of the former Border’s site in its refurbished Jam Factory on Chappell Street in South Yarra to Top Shop had exceeded expectations. Challenger also signed Italian pizza chain Konopizza to lease its first shop in the mall.

The new Myer Emporium being built by in the Melbourne CBD by Grocon for Colonial First State’s Global Asset Management and due to open towards the end of the year is set to include a number of international retailers making their debuts in the Australian market.

This article first appeared on Property Observer.