retail space


International brands are driving a retail “space race” in the Pacific, with more than 90 groups looking to rollout stores in Australia and 50 eyeing New Zealand, according to new research from retail adviser CBRE.

Despite the increase in international brands entering the region in recent years, international brand penetration rates in Australia and NZ remain relatively low.

The penetration rate in Australia is 28 per cent while in NZ it is 16 per cent—small numbers compared to China, Singapore and Hong Kong, which all have rates in excess of 45 per cent.

Stephen McNabb, CBRE’s head of research in Australia, said international retailers could seek a total of 1.6 million square metres of retail space—or around 1,800 stores—in Australia alone over the next five years as they play catch up.

There will also be a shift in the type of international retailers entering the region, with an expected slow-down in the number of luxury brands opening new stores. Luxury retailers were the largest group to enter the Pacific last year but this trend is expected to wane.

“Over the next five years, we expect mid-range fashion and specialist clothing brands to show a rising contribution to brand entry rates in Australia and New Zealand, said the head of CBRE’s Pacifc retail occupier team, Tim Starling.

“These retailers will have a more wide-ranging impact than the luxury brands, as they tend to focus only on CBD or prime regional centre locations.”

Changes already apparent

According to CBRE, international brands have already significantly altered the retail landscape in Australia and NZ. Their entrance has driven up CBD rents, leading to regional shopping centre redevelopments and the instigation of new retail precincts in both countries.

Younger consumers are supporting this change, said McNabb, as they have a preference for international brands and “retail-tainment”, as is an increase in tourists from China.

Chinese tourist arrivals have tripled in Australia and quadrupled in New Zealand over the past decade, which is supporting retail trade, particularly in the major CBD markets.

“Chinese tourists not only spend more per visit, but they also have a higher appetite for goods purchase to take home, as opposed to western tourists,” said McNabb.

“Another market driver has been Australia and New Zealand’s consumption per capita, which has grown at twice the rate of the U.S. over the past decade. This has contributed to the sales productivity of some international brands being among the highest in the world which, coupled with low international brand penetration rates, is making this region highly attractive.”

Sydney, Melbourne and Auckland key cities

National director of CBRE’s retail services group, Alistair Palmer, said international retailers are beginning to see the Pacific as one region, rather than focusing on entering Australia with NZ to follow a few years later.

“Recent developments indicate that international retailers increasingly view the Pacific as one region, with an initial target of the three main gateway cities of Sydney, Melbourne and Auckland followed by secondary cities in both countries,” he said.

“This is evident by the international penetration rate of Auckland being on par with Brisbane but growing at a more significant pace, on par with Sydney, in the past year.”

The downside of this for local retailers has been the significant increase in competition for retail sites and an increase in rents. However, CBRE tips that displaced domestic retailers could increasingly seek secondary centres, which will have a positive impact on areas that currently struggle with low retailer demand.