International brands pushing up retail rents

Smaller retailers are being hit by strong tenant demand from international brands, with retail rents rising as high as $13,560 per square metre in Australian cities, according to a report by CB Richard Ellis.

The report reveals Melbourne, Sydney and Brisbane are in the top 10 most expensive retail markets in the world.

The report also shows Sydney has moved from third to second place while Brisbane remains ninth on the list.

Melbourne jumped from 12^th to 10^th place as a result of strong tenant demand from international retailers like Zara, Gap and Esprit.

Josh Loudoun, CBRE director of retail services for the Pacific region, says international and national retailers are gravitating towards new and refurbished spaces in the CBD markets of Sydney, Melbourne and Brisbane.

The report found super prime rents in Sydney have risen as high as $13,560 a square metre, with rents starting at $6,000 a square metre.

Melbourne rents reach up to $6,500 a square metre, while Brisbane commands a top rental of $7,845 a square metre.

Loudoun says the interest from international retailers, particularly in the fashion sector, will keep the Australian market competitive and possibly push up rents.

“Australia is an expensive retail market. We have higher occupancy costs than most other countries,” Loudoun says.

“We don’t have an oversupply of retail markets as they might have in other countries and we don’t have a lot of b-grade shopping centres showing up.”

CBRE found prime retail rents globally increased by 0.2% between the second quarter and the third quarter of this year.

Loudoun says in addition to strong tenant demand, domestic economic conditions are also impacting on retailers.

“Probably one of the issues facing retailers at the moment more than anything is the issue of rising utility charges, particularly water which has increased quite a lot.”

However, Loudoun says rising interest rates and low retail spending should stabilise rents over the next 12 to 18 months.

“This is simply part of the cycle we’re going through. The cycle is somewhat longer than what people were predicting. But the market will remain competitive and activity will increase over time,” he says.