The Melbourne CBD is leading in the retail stakes as it records the lowest vacancy in the country at 7.37% as well as the largest vacancy reduction of negative 330 basis points.
The results come from commercial real estate firm CBRE’s latest Australian CBD Retail Vacancy H2 2023 report, which noted that one sector of Melbourne’s vacancy tightening is being driven by fashion retailers.
Other capitals across the country are also recording vacancy drops, with Sydney CBD down 275 basis points, resulting in an 8.1% vacancy. Brisbane and Perth each had a marginal tightening, hitting 18.7% and 25.3%% respectively.
Source: CBRE
In Melbourne, vacancy across all three retail categories - arcades, strips and centres - decreased over the second half of 2023, with the largest recorded declines noted in laneways and arcades as well as strip retail, at 3.6% and 3.5% respectively.
Both categories ended the first half of 2023 with vacancy levels above 10%, driven by a few non-core locations.
“Significant bifurcation is evident in both categories, with non-core locations exhibiting significantly higher vacancy than core locations,” CBRE director of retail leasing Jason Orenbuch said. “While overall vacancy has declined over the period, tenant preference for vacant space appears to be concentrated in limited locations.”
This is equally relevant for Melbourne’s CBD shopping centres, with a more than 10% spread in vacancy observed between core and non-core centres. The strength of fashion retailers despite rising interest rates and cost of living pressures, continues to be a major factor for the decline in centre vacancy.
Melbourne Central, for instance, saw store openings from fashion and accessory businesses including LSKD, Supré and Strand's brand subsidiary Nere in the last half of 2023.
In Sydney, CBRE’s Australian head of retail leasing Leif Olson said retail sales growth and return to the office has underpinned a reduction in vacancy.
The Sydney reduction of 275 basis points represented the first half-yearly contraction since H1 2022 and the largest movement on record since H1 2021.
Despite overall vacancy contracting, strip retail vacancy softened to 7.9%. However, Olson said Sydney’s CBD core had continued to benefit from a strong inflow of global brands securing flagship tenancies in strip locations.
This includes pearl jeweller Paspaley opening on Castlereagh Street, and luxury watch brand Piaget opening on King Street. Other key openings in the last six months include the world's largest Lego store in Pitt Street Mall and RM Williams on George Street.
Olsen said international brands are particularly attracted to Sydney CBD, given the consumer spending power.
“Retailers are focusing on their connection to consumers, which has resulted in bigger, curated experience stores – a trend we’re seeing across the globe,” he said.
Centre retail in Sydney saw the largest vacancy reduction over the second half of 2023 to 8.1%, driven by the increasing return of CBD workers. This follows a stronger performance of luxury brands and food and beverage over the period, especially in food courts such as in Westfield and the MLC Centre.
As for Brisbane and Perth, both recorded small decreases in vacancies at 83 basis points and 12 basis points respectively.
Brisbane’s tightening vacancy rate is being driven by high demand for flagship stores in prime positions and an overall increase in CBD visitation.
CBRE associate director of retail leasing Tanaka Jabangwe said other contributing factors to note include a solid return to office, strong population growth and a steady improvement of international tourism.
Major redevelopments are set to revitalise the Brisbane CBD, including revamps of integral retail hubs such as the Eagle Street Pier redevelopment and the introduction of new retail space in developments such as Queen’s Wharf. Portside Wharf in Hamilton, just outside of Brisbane CBD is also offering grants of up to $500,000 to attract new retailers.
Perth’s retail vacancy rate of 25.2% is the lowest recorded in two years, down from a peak of 26.5% recorded in H1 2022.
The vacancy improvement was driven solely by lower vacancy in retail strips (24.2%) which more than compensated for higher vacancy in Perth’s retail arcades (27.6%) and centres (26%).
“The drop in Perth CBD strip retail to 24.2% was driven by continued strength in Perth’s core retail strips (Murray Street Mall, Hay Street Mall, William Street and the developing luxury precinct immediately west of the Murray Street Mall),” CBRE senior director and WA head of retail Fred Clohessy said.
“After an extended period of relatively higher vacancy and rental correction, Hay Street Mall stabilised in H2 2023 and has shown signs of gradual improvement.”
Looking forward, Clohessy said Perth CBD’s retail vacancy is expected to continue to improve in 2024, driven by the city’s nation-leading return to office occupancy, WA’s strong economy, tourism growth and ongoing demand for luxury products.
“Longer-term, the scheduled completion of ECU’s city campus in late 2025 will also be a key catalyst for a continuing improvement in the vibrancy of Perth’s CBD retail market.”
CBRE's report also showed the total retail sales in Australia were near $425 billion in 2023. This was 60% higher than the 2013 spend of $259bn.