No pain, no gain: Sydney CBD Retail

Daniel Lees, Director | Research

Construction of Sydney’s light rail project is now well underway, with the immediate disruption painfully obvious amongst commuters, tourists and shoppers alike. But while completion of the project isn’t scheduled until 2019, the impact is already being felt in the retail sector.

Colliers Edge data for the second quarter of 2016 suggests that overall Sydney CBD gross face rents have increased 5.4% over the quarter to $9,750/sqm, up from $9,250 in 1Q16. The underlying details reveal stronger growth in Pitt Street Mall, although this isn’t unusual. Retailers in this precinct tend to be price takers, willing to pay a premium for the high levels of foot traffic on offer. Indeed, rents in this highly sought after location have gained 12.5% over the quarter with tenants paying up to $17,000/sqm, outstripping the broader CBD.

Sydney gross face rents

While Pitt Street Mall boasts the highest rent values in Sydney, the rate of rental growth has been far higher in George Street. Gross face rents in this precinct have surged 21.6% over the quarter to an average of $4,500, ranging from $3,500 to $5,500 between Hunter and Bathurst Street.

Sydney gross face rents 2

In our view, this significant growth can be attributed to three factors. Firstly, the pedestrianisation of George Street will act as a catalyst for higher levels of foot traffic within the region, justifying some form of rental premium from tenants. Secondly, interest from offshore retailers is unlikely to wane, spurred by Australia’s robust consumer environment. These new players require more space and the demand overflow will spread outward from Pitt Street Mall. Finally, the light rail project will facilitate greater interconnectivity between Sydney’s various precincts, with George Street becoming the core transport spine.

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