Several key luxury brands may abandon Melbourne's embattled Emporium development after high-end tenant Gucci ditched its new store in the flagship retail project in favour of expanding on Collins Street.
Gucci is expected to announce within weeks a new store in a sought-after Collins Street location despite initially committing to a space in the Emporium building.
The move is likely to have a cascading effect on other luxury retailers signed up at the $1.16 billion Lonsdale Street project as most top-end global brands include "adjacency" clauses in leases to ensure they are located with similar upmarket tenants.
Other high-profile tenants such as Salvatore Ferragamo and Bottega Veneta - a Gucci subsidiary - were reconsidering and some had put out feelers for other Collins Street options, industry sources said.
Gucci is expected to take over the Ermenegildo Zegna store next door to its Collins Street site, giving it a much larger corner footprint.
"If Gucci is not going into the Emporium, my understanding is they will be expanding into the Zegna site next door," said former state government retail specialist and consultant Martin Ginnane. Zegna was speculated to be trying to negotiate space in the old Ferragamo store at the top end of Collins Street, he said.
The loss of Gucci and others will be a significant blow to Emporium's premium status and comes on top of a series of construction delays, cost overruns, write-downs, union disputes and court action.
The Emporium, half-owned by CFS Retail Property Trust Group (CFS) and the Government of Singapore Investment Corporation (GIC), is being built by Grocon on the site of the former Myer Lonsdale Street store.
Myer will retain a large space and part ownership of the retail complex. But the new building's December construction was delayed until March 2014 following a blockade of the site by building unions.
The project suffered a $125.9 million write-down after an independent revaluation following changes to the building to accommodate luxury tenants and Melbourne's subdued leasing environment.
CFS head of investor relations Penny Berger said the company did not comment on individual leasing deals or tenancies.
"What we have said in August, and nothing has changed since, is that the development is still leased in excess of 90 per cent by income," Ms Berger said. "We're very happy with how things are going. It's on target."
Other brands to sign as Emporium tenants include a four-level flagship store for Japanese fast-fashion brand Uniqlo, MaxMara, Paul Smith, Miu Miu, Mulberry, Scanlan & Theodore, sass & bide, Zimmerman, Oroton, Marcs, Saba, lululemon, Carla Zampatti, Georg Jensen, Alannah Hill and Max & Co.