The prevalence of foreign brands and relatively strong growth in retail sales over the past 18 months is translating into higher rents.
A rate increase in the second quarter of 2015 is set to continue into the next two years, according to a new report from CBRE.
CBRE Australia head of research Stephen McNabb said larger retailers are attempting to resist the rise.
“Rents are forecast to grow by 1.5% over 2015, 1.8% over 2016 and 2.2% over 2017.
“Whilst further rent growth is expected in H215, we believe retailers are resisting large rental increases amid profit margin pressures as retail price inflation is still low."
Strong demand from foreign retailers is also driving the creation of new CBD and regional shopping centres.
CBRE Retail Services national director Alistair Palmer said the extension and refurbishment of regional centres had seen many foreign retailers take up space.
This has lifted the image profile of these centres and led to forecast rent increases in the medium term.
“There is approximately $8 billion worth of redevelopment and extension work likely to be undertaken by the listed REITS in the next 5 years, including major regional centres such as Westfield Chatswood, Eastlands VIC, Westfield Knox VIC, Westfield Warringah Mall NSW, and Chastwood Chase NSW.”
“The big game changers are likely to be Pacific Fair on the Gold Coast, Chadstone VIC and Castle Hill NSW,” Palmer said.
Landlords are moving into a development phase after a decade of limited development, fuelled by the higher returns that can be achieved through redevelopment rather than acquiring additional centres.
“Returns on development projects are likely to be approximately 9%, rather than 5% for purchasing existing centres,” Palmer said.
Some owners are additionally removing underperforming department and discount stores and replacing them with other retailers, including offshore brands, in an effort to strengthen centre appeal and relevance to consumers.
“By positioning centres to appeal to the changing buyer demographic, owners can often achieve a higher return out of new retailers who take less space than department and discount stores and have far higher turnover rates per sqm,” Palmer said.
CBRE retailer tenant representation head Tim Starling said Australian retailers have typically occupied smaller footplates.
“Previously 2,000sqm floor plates were not accessible and so Australian landlords have had to re-think their ability to provide this space, which in turn has created the ‘space race’ amongst landlords.”
“General retail footprints are growing across the board, from fast fashion through to the luxury sector. This can attributed to strong sales results and the desire for retailers to showcase a wider product range,” Starling said.