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Pitt Street Mall and Melbourne's Bourke Street Mall rents have jumped by 11 per cent in the past 12 months, boosted by the influx of the international retailers.
But the high costs have made other tenants spread out further in the city, which has made the rents in the surrounding "prime" and secondary streets also rise at a rapid rate.
CBRE's head of retail representation, Australia, Tim Starling, said in the first quarter of 2015 super prime net rents grew by 1.5 per cent nationally, while prime and secondary rents both recorded 2 per cent growth.
According to the retailers and landlords along the strips, the average rent in Sydney is about $10,000-$11,000 per square metre, per annum, and about $9500-$10,000 per sq m, per annum, in Melbourne
"This brings the annual growth rates to 11 per cent, 8 per cent and 6 per cent, respectively," Mr Starling said.
"Sydney is being seen as a key global gateway city and as the flagship destination of choice for retailers entering the Australian market."
In the coming year, H&M and Forever 21 will open Sydney and Melbourne flagships on the heels of the 2014 openings of Sephora's first and Uniqlo's second Australian stores.
As first revealed by Business Day, technology giant Microsoft, is to lease the former Guess space over two floors, on levels two (street level) and three, next to Sephora in Pitt Street Mall.
Mr Starling said in the future, the influx of premium international and luxury retailers is expected to shift more demand to prime locations, particularly for smaller specialty size spaces, given they do not target the mass-market like fast fashion retailers.
"Foreign retailers continue to have substantially higher margins than domestic retailers, and place significantly higher emphasis on branding and advertising, which helps achieve high foot traffic and online sales,' Mr Starling said.
"This will continue to drive the 'bulge effect', where domestic retailers are pushed to secondary locations and spaces they typically wouldn't occupy as a result of additional competition and rising rents."
The demand for space in the country region is also rising with Sentinal Property Group buying three non-CBD malls from Charter Hall Retail REIT, for $21.25 million. They are Bathurst, Narromine and Wellington, Central Western NSW.
The Centrepoint Shopping Centre in Tamworth is also on the market by property developer and investor Andrew Richardson, through Nicholas Potter and Sashi Makkapati, of Cushman & Wakefield.
"With metropolitan and CBD retail centres in short supply, both private and institutional investors are increasingly turning their attention to quality regional assets to satisfy their retail investment allocations. Centrepoint Tamworth is in a prime position to attract investment demand, serving a broad catchment in an area primed for future growth," Mr Potter said.
According to Cushman & Wakefield's latest Australian research report Retail Investment Market Review, Outlook and Evolution, the compression of yields in metro locations and city centres is pushing investors to regional towns in search of higher yields.
The report says $3.3 billion worth of shopping centres in regional areas changed hands in 2014, representing 43 per cent of the total transaction value, and this trend is expected to continue.
