Tourists and residents to drive CBD retail recovery in Sydney

November 14, 2013 / By

Recent media coverage has focussed on the arrival of major international retailers, such as H&M, UNIQLO and Dolce & Gabbana, in Australia, with emphasis on the Sydney and Melbourne retail markets. Brands such as Zara and Topshop have established their presence and are now working on the expansion of their store networks. Another wave of international retailers is set to enter the Australian market in the near future.

H&M, UNIQLO and Muji have recently committed to opening flagship stores in Melbourne’s central business district (CBD) and are looking for suitable sites in the Sydney CBD to do the same. The current retail environment in Sydney remains challenging for domestic retailers. The influx of foreign retailers is expected to add greater levels of competition to an already competitive environment. But will there be any benefits in the long term?

Sydney’s population is expected to grow to 5.8 million in 2031, from 4.3 million in 2011 (NSW Government – Planning & Infrastructure). More people are expected to live in, and near the city centre, and in higher density housing. As the CBD population increases, so will demand for retail shops. We are seeing a significant upswing in residential developments and conversions in the Sydney CBD and the city fringe, which will help to accommodate the expected rise in CBD population.

The Australian Bureau of Statistics (ABS) reported that the number of new apartment approvals in New South Wales reached 3,488 in September, an increase of 1,200 on August’s result. In addition to the apartment developments at Barangaroo, in the western corridor of Sydney’s CBD, and Central Park, towards the southern end of the CBD, the mixed use development, York&George, situated in the heart of the CBD, received development approval in October. York&George will feature 32 levels of residential apartments, above a six-level retail and commercial podium. Chinese residential developer, Greenland, will also be developing Sydney’s tallest residential tower at the former Sydney Water Board site in the CBD (115 Bathurst Street), which will deliver over 400 new apartments.

Chinese residential developers, like Greenland, are interested in developing in locations where Chinese tourists and students travel to. A record 72,600 Chinese tourists travelled to Australia in September, an increase of 8,000 since August; and represents a growth of 28.7% year-on-year. If the number of Chinese and overseas tourists continues to increase, and as CBD population increases, it will be important for retailers in Australia to adapt to the needs and demands of these prospective consumers.

The growing presence of international retailers will place pressure on domestic retailers initially as they enter the market but they could provide the needed incentive for domestic retailers to reinvent themselves. The arrival of international retailers is likely to help invigorate CBD retailing in Sydney over the long term, which may help lift retail turnover and rental growth. The combination of positive drivers (tourism and population growth) and the response from certain new international retailers suggests a positive outlook for the CBD retail market.


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