With the swag of new international labels, Sydney’s Pitt Street Mall and Melbourne’s Bourke Street Mall have cemented their positions as some of the most expensive locations in the world to rent a store.
While New York’s Fifth Avenue, Paris’ Avenue des Champs-Elysees and Hong Kong’s Causeway Bay have held their top three positions, Australia’s popularity with international retailers, who are willing to pay higher rents for a flagship site, has kept its main strips on the map.
The Cushman & Wakefield Main Streets Across the World report is based on rent per capita – per square foot in American dollars and per square metre in euros – and tracks 462 of the top retail streets around the globe.
In Sydney, the average rent per square metre per annum for the 2016 year is $13,338, Melbourne’s is $6670 per sqm and Brisbane’s $4050.
In the survey, Pitt Street Mall is ranked No.7 in the world with a rent per square metre of €9383.4 ($13,335 per sqm), beating South Korea’s Seoul Myeongdong at €8793.5, Switzerland’s Zurich Bahnhofstrasse’s €8408 and at No.10 Austria’s Vienna Kohlmarkt.
In the figures, there are also currency factors to be considered with the weaker $A and strengthening yen against the greenback and also some redevelopments that can distort some of the changes in rent over the year.
The retail team at Cushman & Wakefield Australia, Matt Hudson and Ben Tremmellen, together with chief economist John Sears and head of research Dominic Brown, say tourism in general, but from China in particular, has been a component of the retail story for Australia.
They say Chinese tourists tend to favour urban destinations, rather than coastal, which has helped prime CBD retail strips in Sydney and Melbourne especially, and with competition for key streets rising from a breadth of retailers this is squeezing rents resulting in positive rental growth of about 5.7 per cent over the 12 months to June 2016.
Mr Hudson says demand for prime locations by international tenants has led, not just to a rise in rents along Pitt Street Mall, but the limited space has seen a displacement of brands to the adjoining streets.
“This has made Sydney’s core CBD retail zone a destination for shoppers and bought people back into the city,” Mr Hudson says.
“The new office developments such as Barangaroo, with the new David Jones, the change in George Street and the coming upgrade at Circular Quay, are also creating new shopping zones that will add to the attraction of CBD retail.”
The $1 billion redevelopment of Wynyard train station will also see new sites for retailers in George Street.
Mr Tremmellen says Melbourne is also changing with new entrants such as Britain’s Debenhams taking a lease in the St. Collins Lane arcade.
“The next wave of retailers is in the cosmetics sector,” Mr Tremmellen says.
“The success of Sephora and Mecca Cosmetica has prompted others to look at city locations and we are busily looking for sites.”
He says “wellness” is a significant growth sector for retailers.
Mr Sears says economic growth has led to more white-collar employment in capital cities, which is flowing through to demand for a range of retailers from supermarkets to improved food offerings and the traditional apparel.
The report says that to date there has been a reasonably low level of penetration from large international retailers indicating that opportunity still exists, but potential challenges remain such as Australia’s relatively high labour costs and slower income growth.
Mr Sears says, however, the expansion of some, such as Aldi and Zara, has been successful.
He says a successful strategy of international retailers has been to open “fortress” or mega stores in key locations, firmly establishing a presence and then expand judiciously.
“John Lewis’ proposal to open its first stores in strong retail locations in five major shopping centres located in Sydney’s CBD, northern beaches and eastern suburbs as well as Melbourne’s CBD and Chadstone (the largest shopping centre in the southern hemisphere) suggests a similar tactic is being adopted,” the report says.
In the Asia Pacific region, Sydney holds third spot, while Melbourne’s Bourke Street Mall is at No.5 and Brisbane’s Queen Street Mall is at No.9. Low interest rates and the strong housing market in south-eastern Australia have been key drivers of the retail market.
The retail sector in Hong Kong is undergoing a structural change with a shift away from the reliance on top-end luxury brands to support retail sales, towards one that is seeing mass market brands come to the fore, such as fast fashion and food and beverage operators.
This has led to some retailers in Hong Kong applying pressure on landlords to lower their expectations, and some are obliging as they look to protect income streams.
The decline in asking rents may also create opportunities for retailers who are looking to enter and/or expand in Hong Kong to snap up units on prime pitches on good rental terms.
In Tokyo, the 2020 Olympic Games has prompted the redevelopment of urban retail complexes and high streets with retailers looking to cash in on inflated visitor numbers associated with the sporting event.
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