- Strongest growth recorded in Adelaide, Brisbane, and Sydney
- Melbourne super prime rents contracted by 7.4% QoQ.
- Regional shopping centres dominated Q2 transaction activity.
Super prime CBD retail rents have bounced back for the first time since the pandemic hit. The rise was recorded across Adelaide, Brisbane, and Sydney, while other capitals saw rents remain stable; Melbourne was the only capital city to see rents compress.
CBRE‘s Australian Retail Figures Q2 2023 report has found some promising signs for the retail market, with Australian director of retail leasing, Leif Olson, noting:
“The Q2 result is evidence that retail rents may have bottomed across most CBD retail markets and are on the way up, particularly for super prime assets.”
Super prime CBDs return to form
The report found that Adelaide had the most robust rate of rental growth, with super prime rents increasing 7.4% quarter-on-quarter (QoQ) to $3,275 per square metre (sqm). Brisbane came in second, posting 7.2% QoQ growth to $3,595 per sqm, followed by Sydney, where rents grew by 1.5% to $10,944 per sqm.
On the other hand, rents were unchanged in Perth and Canberra. Melbourne was the only capital city going against the grain, with super prime rents dropping by 7.4% QoQ and 13.8% YoY to $6,250 per sqm.
“Melbourne’s super prime retail Bourke Street Mall is one area that has seen rental contraction; however, it is important to note that Bourke Street is undergoing generational change with a number of key world-class developments currently underway, bringing more stability to the city’s super prime retail sector,” said Olson.
“With vacancy rates stabilising across the country, coupled with international tourists returning, we see a positive outlook for retail across all markets and are expecting more improvement in rents for the remainder of 2023 and into 2024.”
Although super prime rents held steady or grew in most capital city markets, CBRE research analyst, Bass Miller, remarked that super prime CBD yields slowed down for the first time since the Reserve Bank of Australia (RBA) started raising interest rates in May 2022.
Net Face Rents and Yields across Australia
The national average yield grew by 30 basis points (bp) QoQ to 4.82%. All retail asset classes followed the same trajectory over the past year, with yields for regional, sub-regional, and neighbourhood centres climbing by 25bp, 23bp, and 21bp, respectively. Over the same 12 months, prime large format centres experienced a 24bp increase.
Regional shopping centres are the star of Q2 2023
Regional shopping centres comprised the bulk of transaction activity in Q2, constituting 54% of retail investment sales, or around $564.5 million.
Major transactions in the second quarter included Melbourne’s Craigieburn Central and Broadmeadows Central, sold for $300 million and $134.5 million (50% share), respectively.
“Despite economic uncertainty and the high cost of debt, investment has been driven by the strong migration and tourism outlook. We forecast yields to soften in 2023 although, at a decreasing rate, in response to rising cost pressures and interest rates,” Miller said.
While shopping centre supply completions rose compared to the previous quarter, they were generally slow, considering rising debt costs, construction obstacles, and stoppages.
“Neighbourhood centres dominated new stock delivery in Q2, with projects including Woolworths Clarkson Shopping Centre in Perth (5,300 sqm). Neighbourhood centres also dominate the future pipeline, accounting for 51% of the shopping centre developments due to be completed in 2023. This comes as the COVID-19 pandemic highlighted the importance of the ‘20-minute neighbourhood’,” Miller said.
Large Format Retail (LFR) static in Q2
LFR face rents were mostly unmoved quarter-to-quarter across Australia. Western Australia had the only change, with rents increasing by 2.5%. Miller explained that the stable rents seen in other states were probably caused by a combination of occupier and owner uncertainty, causing low leasing volumes.
“Positive consumer trends continued through the first quarter of 2023, however, LFR spend declined marginally over quarter two. This comes off the back of high-interest rates and consequent decreases in the consumer savings rate,” Miller said.
“Household goods spend is typically first to go as household budgets contract impacting LFR sales and foot traffic. This trend is likely to continue until a peak in interest rates is observed.”
“Demand for LFR assets remains active and yield-focused as limited market supply persists; short supply is being exacerbated as LFR sites are being repurposed to meet a shortfall in industrial land supply. Growth in new LFR supply is unable to keep up with population and migration increases and rents and yields are being protected through limited competing centres.”