Until the arrival of large and mid-range international retailers such as Zara, Topshop and more recently, Sephora, there was an affordability gulf protecting Australia’s own mid-market brands.
Luxury stalwarts like Louis Vuitton, Chanel and Versace posed little threat, because they were only going after the very high end of the market.
But times have changed, and as CBRE’s Q4 MarketView – Retail report shows, competition for space is heating up, and Australian brands are not the winners.
Rents increased nationwide by an average of 3.7 per cent, while in New South Wales the high number of foreign retailers entering the market caused rents to hike by 10.7 per cent. In Victoria, CBD retail rents rose by 7.8 per cent.
According to CBRE head of Research, Australia, Stephen McNabb – the expectations for growth in the rental market are steadily improving alongside improved trading conditions, with the buoyant activity in the housing sector 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,” McNabb said. “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.”
However, the storm is not clearing just yet.
Alistair Palmer, CBRE national director, Retail Services, also weighed in, commenting that the trend towards domestic retailers being priced out of prime locations looks set to continue in 2015.
International and well-established foreign brands often have the edge due to the sheer size and sophistication of their supply chain processes, and their advantage due to scale. As a consequence, Mr Palmer said in the highly competitive CBD retail market, Australian brands are left with the choice of copping the extra rent, or moving to a secondary location.
“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.”
Notably, rents in regional centres are expected to increase by 2.6 per cent this year and by 2.8 per cent in 2016.