CBD retail vacancy rates fall to 2.6pc

THE vacancy rate in Melbourne’s CBD retail core has tumbled by 55% from a post-GFC high of 6% in March 2011 to just 2.6% in the last 12 months, according to Savills.

Despite the addition of several new CBD retail centres, Savills latest retail research shows the vacancy rate declined from 3.8% to 2.6% over the year, for the fifth consecutive year – supported by a growth in retail trade in Victoria of 5.01% year on year in January compared to the national average of 4.26%, on the back of the population growth, tourism and the continued influx of high profile global fashion brands.

Savills Victorian research manager Monica Mondkar said there were a number of factors at play which would sustain a tight market in coming years.

“This is a positive result reflecting the growth in retail trade in the CBD which has been driven by the number of new and refurbished retail precincts and the continuation of the influx of high profile global brands.

“Those developments have arguably accounted for a significant part of the increase in spending, attracting thousands of new shoppers to the CBD while growth in both the office and residential population, as well as tourism, has also been significant,” she added.

“With the resident population alone expected to grow by 14% by 2020 we are going to see the vacancy rate remain low over the medium term,” Mondkar said.

Savills research shows the retail core market has only 29 vacancies, down from 64 in 2011.

The survey found the tenancy mix continued to show a rise in the number of food & beverage and hospitality stores, including supermarkets and liquor stores, as well as services and fashion, with the latter increasing on the back of the attraction of shoppers to international brands.

Source: Savills Research

Victorian director retail services Michael Di Carlo said the growth in international fashion brands which peaked about three years ago had continued, albeit at a much slower pace. As a result, to a degree it has stabilised rents and allowed local retailers greater opportunities.

“The growth of international brands has been the story, and to a degree remains the story, but it is now more about the market having plateaued and that opportunities, which had been in a sense denied to local retailers due partly to landlord’s expectations about rents that international brands would pay, have now opened up.

“That is not to say that the international brands influx is off the boil, indeed there remains significant interest in Melbourne including from the likes of Marks & Spencer and Debenhams, who are still in the hunt for space here,” he added.

Di Carlo said while international brands had attracted shoppers from all over Melbourne it had been the increase in CBD and surrounds residential and workforce population that had driven the rise in food & beverage and services retailing.

“This is a demographic change that reflects what you might call a cultural shift with Melburnians, once wedded firmly to the suburban quarter acre block, now showing a definite penchant for inner-city apartments.

“That’s a development which is here to stay and that will continue to be a key driver in the make-up of CBD retail. At the same time Melbourne remains the fashion capital and is also firmly on the radar with tourist shoppers and those factors will also drive the CBD market for the foreseeable future,” Di Carlo said.

Despite the low vacancy rates, there has been little movement in rents, which now range between $1500 per sqm for CBD shopping centre and a circa $11,000 per sqm for prime space on Bourke Street Mall.

Source: Savills Research

Australian Property Journal