Retail rents on the rise

Retail rents on the riseRents for retail premises are beginning to rise after a prolonged lag in retail trade, with the continued entrance of foreign retailers causing increased demand for prime CBD space, according to a report from CBRE.CBRE’s Q4 Australia Retail MarketView report shows that competition for CBD space in a low-vacancy environment has been a key driver of CBD rental growth.Rents have increased by 3.7 per cent nationwide in the past year, with New South Wales recording a significant rental hike of 10.7 per cent and rents in Victoria up 7.8 per cent over the period. The arrival of French luxury cosmetics retailer Sephora and Uniqlo in Sydney’s Pitt Street and Swedish mid-range fashion retailer COS in Melbourne’s Elizabeth Street has played a role. Stephen McNabb, CBRE’s head of Research, Australia, says expectations for rent growth are improving across most parts of the retail sector as a result of improved trading conditions, due in part to buoyant activity in the housing sector that is driving increased sales of household goods. “Retailer profit margins have fallen in the past two quarters due to rising competition and the weakening Australian dollar, but are still relatively high after a period of consolidation and cost cutting,” says McNabb. “Retailer business confidence, while modest, is improved on the weak levels of 2013. Fundamentals are now more supportive of rental growth and this has driven stronger investor interest in the retail sector.”CBRE national director, Retail Services, Alistair Palmer says the trend towards domestic retailers being priced out of prime locations looks set to continue in 2015. Foreign retailers have vertically integrated supply chains, and the economies of scale they enjoy right along the supply chain give them a competitive advantage, enabling them to meet higher occupancy costs.”We expect domestic retailers to either be willing to pay higher rents or relocate to secondary locations”, says Palmer. “Domestic retailers are also repositioning and reinventing themselves to target niches between the mass and high-end luxury markets, such as the fast growing ‘affordable luxury’ segment.”Foreign retailers are also targeting regional shopping centres, activity that is expected to support rental growth in the regional sector over the next few years. Rents in regional centres are expected to increase by 2.6 per cent this year and by 2.8 per cent in 2016.To download a copy of the report select this link