Melbourne is famed for its eclectic dining and year-round calendar of major sporting events and cultural festivals, and is emerging as a heartland of Australian fashion and design. Australia’s second most populous city also boasts a vibrant retail scene, ranging from the artisans of Flinders Lane, jewellery shops on Crossley Street and the fashionable new Emporium Melbourne mall on Lonsdale Street to the high-end stores along Chapel Street and Collins Street, Bourke Street Mall and Chadstone the Fashion Capital, the southern hemisphere’s largest shopping centre. Impressive suburban developments beyond include Highpoint Shopping Centre and Craigieburn Central.
Retail sales growth
Current retail stock
New supply forecast
LEASING DEMAND REMAINS MODERATE DESPITE SPENDING REBOUND
Retail turnover in Victoria continued to grow at an above-trend pace, with spending increasing by 5.3% y-o-y in May 2015. Household goods and cafes, restaurants and take-away food services remained the key drivers of growth. The rebound in retail turnover is expected to gradually improve leasing demand in the short term.
ROBUST COMPETITION FOR RETAIL ASSETS
Investment activity remains constrained by limited opportunities. Transaction volumes of just AUD 417 million were recorded 1H15, compared with AUD 2.1 billion in the 2014 calendar year. Competition for assets and a low cost of debt are driving yields lower as investors seek to grow their portfolios.
OCCUPANCY RATES REMAIN RESILIENT
Primarily driven by a decrease in the CBD vacancy rate, the average vacancy rate remained stable, while all other Australian markets showed an increase in 1H15. Supply for Melbourne in 2015 is expected to be 33% higher y-o-y, but is likely to be below the long-term average. The pre-2017 supply pipeline is evenly split across the retail sub-sectors.
OUTLOOK: RETAILERS BUOYED BY RETAIL SPENDING RECOVERY
Few assets available for sale means transaction activity is likely to be lower in 2015 than 2014. Downward trending yields are forecast to continue and spreads between retail sub-sectors may narrow. Demand for retail space will be supply-led, with redevelopments creating options for new and expanding retailers. Prime centres should enjoy solid demand, but challenges exist for secondary or non-core assets.