This isn’t just an Australian phenomenon, with the S&P Global Luxury returns showing a 10 year high, which peaked in November 2021. This represented a 40 per cent increase in returns compared to the 12 months prior, with annual increases over the past five years averaging 8.33 per cent. Post this period, changes in interest rates internationally during early 2022 saw some volatility in results, with most recent indicators showing some decline in activity.
For Australia, high inflationary pressures together with rising interest rates have seen retail trade levels moderate for essential goods. Despite this, the strong labour market with record low unemployment has kept confidence up. As a result, we continue to see savings well ahead of pre-pandemic levels, which has supported an increase in credit card transaction activity during the first half of 2022. While we’ve seen some volatility in activity, the overall increased wealth creation - due to strong gains in housing over the past few years - has improved sentiment surrounding luxury spending.
During a time where CBD retail has been under pressure, we’ve seen a strong commitment by luxury retailers to grow their brick-and-mortar footprint. While tenants were hampered by the lockdowns restricting non-essential shopping, and border closures cutting international tourism, some retailers took this time to improve their customer experience and in-store offerings. However, for some, plans were in place well before COVID-19 as activity in the luxury retail space slowly grew momentum, increasing returns year-on-year.
The redevelopment of 25 Martin Place (formerly MLC Centre) is one of the longer term projects which, upon completion, will include a hub for luxury fashion. Brands new to Australia, including Missoni and Brunello Cucinelli, will join Valentino and Dolce & Gabbana at this premier address. Despite the disruption along Castlereagh Street due to the Sydney Metro development, existing retailers including Bvlgari and Chanel welcome new retailers like Robert Dubuis, while Dior, Fendi and Hermes have all seen recent upgrades to their premises. Cartier’s new Oceania flagship store is expected to open up later this year at its George Street location, extending the luxury trail up King Street and down Castlereagh Street to Westfield with Gucci, Prada, Versace, Piaget boutique and many more.
Sydney isn’t the only market to benefit from upgrades to luxury strip retail, with Ralph Lauren announcing their first Western Australian offering and a new Melbourne CBD store due to open later this year. This adds to the luxury brands also calling major Australian cities home including Louis Vuitton, Hugo Boss, Tiffany and Burberry to name a few.
During a time where retail vacancies have been pressured upward for Australian CBDs, the growing demand from these larger space users has been instrumental in improving vibrancy to our cities. These retailers attract customers from across the country, as well as internationally, seven days a week. They’re not reliant on the working population which has been slow to return post pandemic. High capital expenditure in their stores keeps the quality of assets high and dictates new benchmarks in achievable rents, improving the attractiveness of our cities both domestically and internationally for visitors.
