Australia’s CBDs are seeing strong demand for retail space from luxury brands despite a rise in store vacancies for the first half of 2023.
In the last year, Dolce & Gabbana, Loewe, Louis Vuitton, Cartier, Brunello Cucinelli, Missoni, Sarah & Sebastian, Ralph Lauren, and Danish fashion house Ganni have each opened new stores in CBDs across the country, particularly in Sydney.
Commercial real estate firm CBRE confirmed this news, adding that current enquiry levels show a possible contraction over the next six months.
The firm’s latest H1 CBD Retail Vacancy report highlights that the national vacancy rate softened from 13.9% in H2 2022 to 15.0% in H1 2023.
The biggest H1 vacancy decline of 0.77% was recorded in Adelaide, with a 0.74% tightening in Perth.
While Melbourne’s vacancy increased by 0.8%, the city now has the lowest vacancy in the country at 10.7%. This followed a 2.49% increase in Sydney’s vacancy rate to 10.8%. A vacancy increase was also recorded in Brisbane (+1% to 19.5%).
“Overall vacancy has softened nationally, coming off seasonal highs in H2 and lower spending, however rising office occupancy rates and the return of international tourists and students has increased visitation,” CBRE research analyst Darcy Badgery said.
“We’re also seeing a national flight to quality trend, with our latest Live, Work, Shop survey highlighting that 61% of retailers want to increase the quality of their store locations.”
Despite overall vacancy softening, Sydney’s strip retail vacancy tightened significantly, dropping from 3.19% to 6.9%.
This followed a surge in leasing deals in prime locations to brands including Adidas, NBA and JD Sports and continued activity by luxury retailers seeking to open flagship stores to remain competitive.
The overall CBD increase was attributable to a 406bps vacancy rise in arcade retail space and a 320bps rise in centre vacancies - largely due to tenancies becoming available following the refurbishment of the General Post Office and difficulties in leasing upper-level retail centre tenancies.
Meanwhile, Adelaide’s CBD retail vacancy rate contracted 77bps to 12.4% in H1 following a very significant drop of 371bps in H2, 2022.
CBRE retail leasing executive Scott Chow said activity in the CBD had been heightened by the reintroduction of major events including the Adelaide Festival in March 2023, in addition to a resurgence in travel-related retail expenditure.
“Demand for retail space on Rundle Mall continues to run high, particularly from luxury retailers, and with space being tightly held we’ve seen interest from high-profile tenants in space around the western end of the mall, which has historically seen high levels of vacancy,” Chow said.
“This comes off the back of major international brands like Uniqlo opening flagship stores in Adelaide and highlights the ‘flight to quality’ and ‘experiential’ retail trends being evidenced across the country.”
In Perth, CBD retail vacancy has continued to steadily decline, dropping by 74 basis points in H1 to 25.4% - the lowest level in two years. Strip retail vacancy in the WA capital also dropped to 25.4%, by 31bps.
CBRE senior director and WA head of retail Fred Clohessy said retailer/tenant interest and enquiry was re-established in late 2022 when confidence returned in travelling to and from Perth following border closures.
“This has carried into 2023 and continued to break down the CBD’s high retail vacancy rate,” Clohessy said.
“The addition of retailers such as Sunglass Hut and Peter Jackson on the Hay Street Mall have helped to reduce the city’s strip retail vacancy rate, with Murray Street Mall continuing to be tightly held.
“Demand for prime space from luxury brands is having a positive effect on rents and future vacancy levels. However, rents are still correcting on Hay Street Mall and in secondary locations where vacancy is concentrated, and higher incentives are being sought by retailers.”
Clohessy noted that the return of events, tourism international students, and WA’s strong economic climate provided a continued base for further vacancy declines over the remainder 2023.
In line with Sydney, Melbourne’s retail vacancy softening was led by centres and arcades – particularly upper-level stores, as retailers gravitated towards prime strip locations.
CBRE associate director of retail leasing Jason Orenbuch said Melbourne’s strip vacancy tightened by 42bps to 10.5%, citing an increase in takeaway food outlets as office occupancy rates rise and international students return.
“There was also an uptick in the development of new stores in H1, which will draw new retail additions to the city and help lift CBD visitation.”
Meanwhile, Brisbane’s overall CBD vacancy rose 1% to 19.5% primarily due to a rising number of empty shops in the CBD’s shopping centres and arcades.
CBRE associate director of retail leasing Tanaka Jabangwe said there was high demand from national and international retailers for super prime stores on the city’s retail strips.
“This was highlighted by Louis Vuitton’s move to a new mall location in the NAB Heritage Building, which is double the size of its previous store in Queens Plaza,” Jabangwe said.
“The demand for flagship outlets is being fueled by workers returning to the CBD and a resumption of international tourism, as retailers tap into the continued demand for experience-based, physical stores.”
Jabangwe said the city’s vacancy issues are primarily associated with upper-level centre tenancies as retailers gravitate towards strip retail locations.
“An example involves Glue moving out of its store above JD Sports on Elizabeth Street to a new mall location early in 2023,” Jabangwe said.