Increasing interest rates and higher utility costs are the challenges that Australian retailers will face as it puts pressure on retail sales.

However, solid economic growth should help underpin modest increases in prime CBD retail rents in 2011, according to a report from CB Richard Ellis.

The Pacific Region CBD Retail MarketView highlights that prime net face rents stabilised across the main CBD retail markets this year after bottoming in 2009.

“While vacancy rates have risen this year as the effects of the federal government stimulus packages dwindled, numerous refurbishment and expansion projects have renewed tenant demand for quality retail space,” Erin Obliubek, CBRE global research and consulting analyst, said.

The MarketView report highlights that Melbourne was the only CBD market where rents rose in 2010. Driven by limited supply, net face rents for prime retail space rose to an average of $2,775 per square metre.

Meanwhile, the report shows that Brisbane commands the highest prime rents averaging $3,982 per square metre for space on or near Queen Street Mall.

Perth’s prime CBD rents have been static since the first quarter of 2009 at an indicative $3,042 per square metre. In Sydney, prime rents average $2,777 per square metre, although this does not take into account the super prime rents charged on Pitt Street Mall. In Adelaide, prime rents range from $2,200 per square metre to $3,200 per square metre.

“National and international retailers have shown particularly strong interest in CBD retail opportunities as demonstrated by the success of recent developments such as Westfield Sydney,” Joshua Loudoun, CBRE regional director, retail services, said.

He also noted that while vacancy rates appeared tight, there was a very high level of sub-lease space currently on the market caused by both tenants relocating into new centres and retailers looking to exit unprofitable stores from their portfolio.