Retail Boom for Melbourne While Office Sector Lags

Despite the office sector still causing some concern, retail in the Melbourne CBD seems very entrenched, according to new CBRE research.

CBRE’s Australian CBD Retail Vacancy report for the second half of 2023 shows that Melbourne recorded the lowest vacancy rate out of the four capital cities surveyed with 7.37 per cent.

It also had the largest drop, 330 basis points as more lease deals were signed off and retail spaces remained occupied.

Sydney’s CBD also recorded a drop of 275 basis points to 8.1 per cent.

Vacancy rates improved in Brisbane and Perth with 18.7 per cent and 25.3 per cent respectively.

CBRE’s retail research head Amita Mehra said nationally there was a slow increase in more people shopping.

“The return to office, coupled with increased tourism and international student inflows, has led to more foot traffic in CBDs, supporting occupier appetite for floorspace within these markets,” Mehra said.

Although there was not much growth in discretionary spending over 2023, it has stayed stable with cost of living pressures declining in the second half of 2023.

Total retail sales for the country were nearly $425 billion in 2023, which was 60 per cent higher than the total sales for 2013 at $259 billion.

People still wanted an in-person experience while shopping, said CBRE retail property management and leasing head Sheree Griff.

“Retail sales growth is attributed to consumers seeking to look good and feel good, with the strongest sales being reported in the wellness sector, cafes and restaurants,” Griff said.

“Our view for 2024 is that leasing growth will occur across all markets as retailers partner with landlords to evolve and meet the live, work, and play needs of consumers.”

▲ Sydney’s retail vacancy rate has dropped because global brands still want a presence on its main shopping strips such as Pitt Street.

In Melbourne, vacancy across all three categories decreased in the second half of 2023 with vacancies in laneways and strip retail dropping by 3.6 per cent and 3.5 per cent respectively.

CBRE retail leasing director Jason Orenbuch said that development in Melbourne would help increase retail demand.

“Multiple other arcades and significant parts of existing centres were undergoing major redevelopment as of H2 2023,” Orenbuch said.

“We expect these developments to continue to spur shoppers to re-enter the CBD over 2024, creating strong demand across the city.”

With more people returning to office and retail sales growth, Sydney’s vacancy rate had also dropped, according to CBRE’s Australian retail leasing head Leif Olson.

“Sydney is viewed as a very good place for international brands to do business, given Australia’s strong and safe economy and consumer spending power,” Olson said.

“Retailers are focusing on their connection to consumers, which has resulted in bigger, curated experience stores—a trend we’re seeing across the globe.”

Strip retail vacancy went up to 7.9 per cent but global brands still want to occupy flagship stores in the CBD.

▲ Brisbane’s former Myer Centre has been rebranded as Uptown and a major rejuvenation of the CBD retail asset is in the planning.

The rate fell by 83 basis points to 18.7 per cent in Brisbane’s CBD due to a flight to quality trend, according to CBRE retail leasing associate director Tanaka Jabangwe.

“Other contributing factors to note include a solid return to office, strong population growth and a steady improvement of international tourism,” Jabangwe said.

“Arcade retail vacancy increased slightly in H2 2023, reaching 15.7 per cent.”

“This growth can be attributed to a tenant flight-to-quality, evidenced across Australia’s commercial real estate market.”

“Brisbane tenants previously occupying lower-grade arcade space, are focusing on site fundamentals that offer better exposure which corelates with a higher capacity for revenue growth and opting to lease higher grade assets in core CBD locations,” Jabangwe said.

It is hoped that major redevelopments will revitalise the CBD area, decreasing the vacancy rate and growing demand.

▲ It is hoped that ECU’s city campus once completed in 2025 will help fuel more retail demand and growth within the Perth CBD.

Perth’s vacancy rate only declined marginally by 12 basis points to 25.2 per cent in the second half of 2023 but it was the city’s lowest vacancy rate in two years.

Retail strips did better than retail arcades and centres, said CBRE WA retail head Fred Clohessy.

“The drop in Perth CBD strip retail to 24.2 per cent 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),” 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.”

The rate is expected to improve in 2024 with the completion of ECU’s city campus in late 2025 driving further demand and growth.