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Sydney retail market forecasts challenges

by Staff Reporter11 minute read

Rents may plateau as interest rate pressures increase

Despite an upswing in Sydney's retail rents this year, CB Richard Ellis (CBRE) says that rents may flatten in the face of rising rates and weakening consumer confidence.

According to CBRE global research and consulting senior analyst Florisa Anolin, prime rents in the Sydney CBD rose a whopping 5.7 per cent this year to reach an average of $2,777 per square metre.

Even secondary precincts have performed solidly in 2010, where rents in this sector of the market increased to $1,640 per square metre.

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However, Ms Anolin predicts the rent drive will kick back a gear the short to medium term.

"Super prime rents are likely to increase further after the much anticipated opening of Westfield Sydney, with this project and the new Mid City Centre having raised the calibre of the CBD retail offering by luring local and international chains in the city core," Ms Anolin said.

"However, as tenants relocate to stage one of Westfield Sydney, CBD retail vacancy is likely to increase as temporary accommodation is sublet and retail competition increases.

"This should bring downward pressure on prime and secondary CBD rents in the next 12 months, as retail spending continues to stagnate," she said.

According to CBRE retail services senior manager Leif Olson, the reason for the downward pressure on retail rents was the increasingly cost sensitive environment among retailers.

High occupancy costs and the rising cost of wages and utilities will all continue to place further pressures on retailers, he said.

Meanwhile, leasing activity has picked up significantly in Adelaide's west over the last 12 months, according to CBRE research.

CBRE manager Craig Klemich said a strong demand for prime industrial properties in the city's west has helped drive activity, particularly in the sub 1,000 square metre category.

According to CBRE, rents remained stable over the past 12 months with net face rents for A grade warehouse stock ranging from $75 a square metre to $130 a square metre, with Adelaide's west representing the upper end of the range.

Mr Klemich said the proximity of the site to Adelaide's CBD as well as the high quality office was a popular attraction for investors.


WA RESIDENTIAL DEMAND DELIVERS MIXED RESULTS

Asian investors are becoming increasingly active in the Australian commercial property market, a new report has revealed.

According to CBRE's latest commercial review, Australia is enjoying growing offshore buyer interest in both large and small scale commercial transactions.

Since 2004, foreign direct investment in Australia grew at an annual average rate of 5.2 per cent with China, Japan and Singapore ranked among the highest growth nations during the period, according to Industry and Investment NSW.

Property has been one of the major targets, with the CBRE review highlighting growing buyer demand both at the big end of town and for smaller assets in the sub $30 million price bracket. In the $50 million-plus range, Hong Kong, Korean and Singaporean investors accounted for 48 per cent of all office deals in the year to June 30.

CBRE executive managing director Scott Gray-Spencer said similarly strong buyer interest was being evidenced at the smaller end of the market, with a number of recent auction campaigns having attracted competitive bidding from Asian investment syndicates and high net worth individuals.

"Australian investment property is an attractive option for offshore investors given the stability and relatively secure nature of our market, which remained relatively resilient during the GFC compared to many European markets," he said.

 

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