Australian capital city CBD retail vacancy rates tightened in the second half of 2023

Despite a cost-of-living crisis and stagnant discretionary spending retail vacancy tightened across the Australian CBDs with Melbourne having the lowest rate among the capital cities.

Shoppers in the Pitt Street Mall.

Retail vacancy tightened nationally in the second half of 2023, despite relatively stagnant growth in discretionary spending.

CBRE’s latest Australian CBD Retail Vacancy H2 2023 report highlighted the CBDs of four of Australia’s largest capital cities which recorded at 12.7 per cent vacancy compared to 15 per cent in the first half.

Of those four cities, Melbourne continues to have the lowest retail vacancy in the country at 7.37 per cent as well as the largest vacancy reduction of 330 basis points.

The Sydney CBD also recorded a decline, of 275bps, resulting in an 8.1 per cent vacancy while Brisbane and Perth each had a marginal tightening to have vacancies of 18.7 per cent and 25.3 per cent respectively.

CBRE’s head of retail research Amita Mehra said overall, vacancy has tightened.

“The return to office, coupled with increased tourism and international student inflows, has led to more foot traffic in CBDs, supporting occupier appetite for floorspace within these markets.,” she said.

Cost of living pressures continued to decline over H2 2023 with the CPI dropping from 6 per cent to 4.1 per cent in the December quarter.

Despite the relatively stagnant growth seen in discretionary spending over the year, overall levels have remained stable. The report showed the total retail sales in Australia were near $425bn in 2023.

Shoppers on Bourke St in central Melbourne.

CBRE’s head of Retail Property Management & Leasing Sheree Griff said Australia’s 2024 retail landscape was positive, despite cost-of-living pressures.

“Bricks and mortar spaces remain highly desirable to retailers in ensuring their brands are vibrant and have a purposeful vibe that fosters a culture of innovation, as evidenced by the current flight to quality trend,” she said.

“Retail sales growth is attributed to consumers seeking to look good and feel good, with the strongest sales being reported in the wellness sector, cafes and restaurants.

“Our view for 2024 is that leasing growth will occur across all markets as retailers partner with landlords to evolve and meet the live, work, and play needs of consumers.”

The report found vacancy in the Melbourne CBD tightened across all three retail categories in the second half of 2023, with the largest recorded declines noted in laneways and arcades and strip retail, at 3.6 per cent to 3.5 per cent respectively.

Both categories ended the first half with vacancy levels above 10 per cent, driven by a few non-core locations.

CBRE director, Retail Leasing, Jason Orenbuch said while overall vacancy declined over the period, tenant preference for vacant space appeared to be concentrated in limited locations.

“This is equally relevant for Melbourne’s CBD shopping centres, with a more than 10 per cent spread in vacancy observed between core and non-core centres,: he said.

“The strength of fashion retailers despite rising interest rates and cost of living pressures, continues to be a major factor for the decline in centre vacancy.”

The Sydney reduction represented the first half-yearly contraction since the first half of 2022 and the largest movement on record since a year earlier.

Despite overall vacancy contracting, strip retail vacancy softened to 7.9 per cent.

However, the report said Sydney’s CBD core had continued to benefit from a strong inflow of global brands securing flagship tenancies in strip locations.

The openings over the past six months include the world’s largest Lego store in Pitt Street Mall and RM William’s on George St.