Sydney chasing big brands

Retail is under pressure from a number of directions - internet sales, weak consumer spending and high savings and the influx of overseas brands - but the longer term outlook may not be as bad, analysts in the sector say.

Tony Sherlock, the senior analyst, property at Morningstar, said despite these challenges, the outlook is far from dire with specialty sales likely near a trough and expected to gradually improve, underpinned by population growth and rising household density.

"We foresee further negative effects from online retailers but tenant losses are likely to be at the margin," he said. "Vacated space can be redeployed to alternate use. Rents could drop when this occurs but it's more likely to be a trim than a crew cut."

At the shop-front level, Melbourne's stature as the country's most fashionable city has led it to outdo Sydney, in terms of rent and labels, but the redevelopment of the city malls is swinging the pendulum back to the north, a new CBRE survey shows.

Melbourne remains the top pick for flagship stores, such as Uniqlo, H&M and Dolce & Gabbana, which are opening before they have found the appropriate sites in Sydney.

CBRE's research analyst Kevin Tong said an improvement in consumer sentiment in recent months suggested lower interest rates were having a positive impact on the market and this would provide a more supportive environment for retailers next year.

He said CBRE was now forecasting more growth upside in NSW in the short term after a sustained period of weakness.

According to the CBRE report, the average CBD rent in Sydney was just under $8000 a square metre a year and about $7450 a square metre a year for Melbourne.

"Over the past few years we have seen a marked divergence between the Sydney CBD and the Melbourne CBD, specifically in the Super Prime retail market," Mr Tong said.

"While Sydney remained relatively stagnant, Melbourne net face rents continued to grow and in fact outstripped Sydney for the first time during 2012."

In the CBRE report, Mr Tong says a cyclical shift was expected to close the relativities in the next year or so.

"Nationally we expect rental growth to improve from near flat levels at the end of 2013 to around 1-1.5 per cent in 2014, with NSW to experience more improvement than Victoria over that period."

CBRE's senior director for retail services, Josh Loudoun, said that in the past year the international brands were prepared to open in Melbourne before Sydney, "which is something we haven't seen before".

Mr Loudoun said Melbourne had done an excellent job in marketing itself to international brands and establishing the city as a leading retail destination. "Prior to the GFC, clothing and department store sales were growing at 3.6 per cent in Sydney and 6 per cent in Melbourne, year on year."