Retail evolution continues in Melbourne CBD

Ben Tremellen, Director - Retail Leasing, Colliers International

An increasing amount of choice and attractive prices have seen foreign online shopping sites surge in popularity. However, Australian consumers’ propensity to purchase foreign goods online may well diminish as the Australian dollar weakens further.

The Australian dollar has depreciated materially over the last two and a half years, currently hovering around US$0.71. In our view, it is likely that the Australian dollar will drift lower as overseas monetary policy, particularly “lift-off” by the US Federal Reserve, places downward pressure on our local currency.

While the internet has enabled consumers to conduct extensive product research prior to acquisition, this does not always translate into an online sale, particularly when that product is located offshore. In many cases, the increase in foreign denominated shipping costs are forcing Australians to weigh up the benefits of their online purchases. Despite the wider variety of choice on offer overseas,  price is likely to remain the key driver of online sales going forward, a factor that can be materially altered by currency fluctuations.

Another factor that may impede the growth of future online spending overseas is the Australian Government’s intention to apply 10% goods and services tax to purchases under the $1,000 threshold. Again, with price being the main driver of online sales, application of GST to low value transactions will erode the price advantage held by many offshore vendors, leading to a decline in overall online sales. While the reform is earmarked for July 2017, there is always the possibility that implementation may come to pass sooner than expected.

In the Melbourne CBD, vacancy is now reset back at zero on Collins Street following Omega’s commitment to 179 Collins Street. Demand is still extremely high, both on Collins Street and its surrounds, with major luxury and international brands looking to evolve their offerings in this high profile precinct.

There has been a push to the non-traditional side of Collins Street in recent times, due to the lack of opportunities. With a new development proposed for 80 Collins Street, we will see more luxury retail taking up space.

Despite talk that brands are moving off Collins Street due to high rents, we are finding it is purely a lack of space that is leading to the transition that is taking place along nearby Russell Street. Collins Street is still the first choice for most brands. There is an evolution taking place on Russell Street driven by limited opportunities on Collins Street and the desire from brands to reevaluate store sizes.

Demand is going to continue for at least the next two years from international and luxury brands, whilst the market continues to grow at a double digit rates.
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