The Australian retail market faces challenging times ahead as rising interest rates, utility bills and rents strain sales.

Economic growth should help underpin modest increases in prime CBD retail rents in 2011, according to a new report from CB Richard Ellis. The Pacific Region CBD Retail MarketView highlights that prime net face rents stabilized across the main CBD retail markets this year after bottoming in 2009.

CBRE Global Research and Consulting Analyst Erin Obliubek said:"While vacancy rates have risen this year as the effects of the Federal Government stimulus packages dwindled, numerous refurbishment and expansion projects have renewed tenant demand for quality retail space."

CBRE Regional Director, Retail Services, Joshua Loudoun added: "National and international retailers have shown particularly strong interest in CBD retail opportunities as demonstrated by the success of recent developments such as Westfield Sydney."

The MarketView report highlights that Melbourne was the only CBD market where rents rose in 2010. Driven by limited supply in the CBD, net face rents for prime retail space rose to an average of US$2,775 per square meter. CBRE's report shows that Brisbane commands the highest prime rents averaging US$3,982 per square meter for space on or near Queen Street Mall.

Perth's prime CBD rents have steadied since 2009 at US$3,042 per square meter while in Sydney, prime rents average US$2,777 per square meter. Adelaide prime rents range from $2,200 per square meter to US$3,200 per square meter.