Local brands are being pushed to the outer by cashed up foreign retailers, according to a new report by CBRE.
In its Market View, Quarter 1, 2015 the real estate company reports an influx of luxury foreign brands into the “Paris end” of Collins St over the past year and predicts the trend will continue.
CBRE leasing agent Zelman Ainsworth said over the past 18 months, 18 international retailers had secured a foothold on Collins St, including Hermes, Dior, Longchamp, Gucci, Dolce&Gabbana, Ermenegildo Zegna, Coach, TAG and Christian Louboutin.
“The number of retailers flocking to Collins St is evidence of its growing appeal on the international stage, with Melbourne regarded highly in the global fashion rankings,” Mr Ainsworth said.
CBRE research analyst Philippa Bordonaro said rising international visitor numbers to Melbourne, boosted by the lower Australian dollar, was supporting the growth in high-end retail.
“Foreign tourists have a greater appetite for luxury items than domestic visitors, which is in turn supporting growth at this end of the market,” Ms Bordonaro said.
Melbourne attracted the largest share of foreign retailer entry in 2014, accounting for 18 of the 37 brands that opened doors for the first time, pre-committed leases or expanded in national CBD markets.
Mr Ainsworth said unmatched demand from luxury retailers wanting to secure a retail space on Collins Street continued to push up rentals to record levels and maintain a 0 per cent vacancy.
But while the news is positive for landlords, it’s not so good for local retailers.
The CBRE report goes on to explain that the falling Australian dollar was helping the foreigners by giving them higher margins.
“Foreign retailers continue to have materially higher margins than domestic retailers, allowing them to sustain higher occupancy costs (up to 30 per cent), making it difficult for domestic retailers to match rent levels offered to landlords by foreign retailers,” the report says.
“In addition, foreign retailers, being new to the market place, significantly higher emphasis on branding and advertising – and indeed a store and signage in the CBD helps achieve this due to high foot traffic – whilst driving additional benefits such as traffic to online stores.”
“This will continue to drive the ‘bulge effect’ where domestic retailers are pushed to secondary location and spaces they typically wouldn’t occupy.”
Ms Bordonaro said over the next five years, Melbourne would continue to see more foreign retailers, driven by the rise in global wealthy, foreign tourists and CBD retail development catering for foreign brands.
“In the 12 months to September 2014, Victoria received more than two million foreign tourists and experienced the largest growth in international visitors in the past decade – 48 per cent versus WA with 32 per cent and NSW with 17 per cent,” Ms Bordonaro said, adding that Victoria’s visitor arrivals increased by 10.4 per cent in 2014, compared to 6.6 per cent in NSW and 3.6 per cent in Queensland.
Furthermore, the number of Chinese tourists visiting Melbourne in 2014 increased 13.4 per cent year-on-year.
“With Melbourne attracting 365,400 Chinese tourists in 2014, the city is positioned to capitalise on the increased appetite for luxury brands,” Ms Bordonaro said.
“Chinese tourists are spending more on shopping than any other group, and this is likely to continue as the middle class wave moves through its population.”
Collins Street Precinct president Mary Poulakis declined to comment.