Melbourne, 15 October 2013 – While the Melbourne retail market has outperformed Sydney in the post GFC period a recalibration is in the wings according to a new ViewPoint from CBRE.
The report tips that a cyclical shift is expected to close the gap in the next year or so, with growth in NSW to outstrip that of Victoria.
CBRE Research Analyst Kevin Tong said an improvement in consumer sentiment in recent months suggested that lower interest rates were positively impacting the market and this would provide a more supportive environment for retailers in 2014.
However, CBRE is forecasting more growth upside in NSW in the short term after a sustained period of weakness.
“Over the past few years we have seen a marked divergence between the Sydney CBD and the Melbourne CBD, specifically in the Super Prime retail market,” Mr Tong said.
“While Sydney remained relatively stagnant, Melbourne net face rents continued to grow and in fact outstripped Sydney for the first time during 2012. However, a cyclical shift is expected to close the relativities in the next year or so. Nationally we expect rental growth to improve from near flat levels at the end of 2013 to around 1-1.5% in 2014, with NSW to experience more improvement than Victoria over that period.”
Super Prime Net Face Rents
However, while Sydney is expected to make a comeback in relation to rental growth, Melbourne is expected to retain its positioning as the more attractive market for new retail entrants according to CBRE Senior Director, Retail Services, Josh Loudoun.
“In the past 12 months, we’ve seen that international brands are now prepared to open in Melbourne before Sydney, which is something that we haven’t seen before,” Mr Loudoun said, citing recent lease commitments such as Uniqlo to Melbourne’s Emporium complex and Dolce & Gabbana to Collins Street.
“Melbourne has done an excellent job in marketing itself to international brands and establishing the city as a leading retail destination.”
In regard to the recent outperformance of Melbourne, CBRE’s ViewPoint highlights that clothing and department store sales have also proved to be more resilient in the southern capital during the post GFC period.
“Clothing and department store sales dominate Super Prime CBD retailing, with fashion retailers accounting for 28% and 27% of the tenancy make up in Melbourne and Sydney respectively,” Mr Tong said.
“Prior to the GFC, clothing and department store sales were growing at 3.6% in Sydney and 6% in Melbourne, year on year. Post GFC, lower growth in the finance sector has led to weaker activity, particularly in Sydney given its higher exposure to this market sector. Looking at the five year average, sales growth has fallen to 2.5% in Melbourne and to just 0.8% in Sydney.”
This has been a major factor behind the divergent rental growth performance of the two cities.
Post GFC, CBRE’s data shows that rents were growing at 6.8% year on year, with that growth having dipped to 1.4% post the GFC. By comparison, growth in Melbourne has dipped only marginally, from 7.2% to 6.9%.
Average CBD Rental Growth (Year on Year)
Super Prime CBD yields have followed a similar pattern having tightened in Melbourne post the GFC but softened in Sydney from 6.2% to 5.4% given the weaker demand conditions.
