Sydney is guiding the nation’s CBD retail recovery, as CBRE analysts believe vacancy will improve as the return to office gathers pace.
According to CBRE’s H1 CBRE Retail Vacancy report, the Sydney CBD’s vacancy dropped by 70 basis points to 6.9 per cent in the first half, with the opportunistic growth of upscale and luxury retailers contributing to the demand growth.
Sydney recorded the lowest vacancy, followed by Melbourne (15.9 per cent), Adelaide (18 per cent), Brisbane (18.9 per cent), and Perth (28.4 per cent). The CBD retail vacancy rate across the nation increased 350 bps to 17.4 per cent in H1 of this year.
“We have seen a slight increase in overall vacancy this half across Australia. However, as the return to the office gathers pace in the coming months, we expect to see more retailer mandates for prime mall locations across the country,” CBRE’s Australia Head of Retail Leasing Leif Olson said.
“The biggest improvements are being recorded for prime stock, with vacancy rates continuing to increase in secondary, non-core locations.”
A wave of Omicron and flu infections has caused office occupancy rates across most major cities to go backwards in July, according to the Property Council of Australia’s latest Office Occupancy Survey.
The Property Council’s survey for July 2022 found Melbourne’s occupancy dropped from 49 to 38 per cent, Sydney from 55 to 52 per cent, Brisbane from 64 to 53 per cent and Adelaide from 71 to 64 per cent.
Canberra and Perth were the only markets to record an increase in office occupancy, from 53 to 61 per cent and 65 to 71 per cent, respectively.
In its FY22 report, Vicinity Centres, which own seven city centre assets, said while recovery in the CBD is slower than in other areas, the outlook is improving. The company noted sophisticated retailers consolidated store networks into Premium CBD centres.
“The Australian retail sector has benefitted from elevated household savings and an extremely tight employment market,” CEO and Managing Director Grant Kelley said.
“Consumers continued to show confidence and capacity to spend while maintaining a strong preference for physical store shopping.
“While we are mindful of inflation, rising interest rates and increased building costs, we are still seeing positive retail sales trends in our centres, and we cautiously anticipate a soft landing for the Australian economy over the next 12 to 18 months.”
Olson added that access to fitout materials and staffing issues had caused some new store openings to be postponed, pushing occupancy dates back to H2 2022 or H1 2023.
Due to its extensive CBD retail core, Melbourne had the most stores (1,832) out of the 4,834 CBD retail outlets surveyed by CBRE for the H1 vacancy report, followed by Sydney (1,082), Brisbane (912), Perth (659) and Adelaide (353).
“The stubborn levels of vacancy recorded in H1 are due to the lagging effects of the pandemic and the fact that some retailers are not renewing leases,” CBRE Research Director Kate Bailey said.
“However, we expect to see the market stabilise over next six to 12 months as retailers reset their strategies and capitalise on an increase in leasing options. Vacancy levels in prime areas are expected to recover faster than secondary areas, amid an ongoing flight to quality.”