This article is from the Australian Property Journal archive
VACANCIES in Melbourne’s prime retail precincts have dropped for the first time in two years, as surrounding residential populations underpin demand led by food operators.
Knight Frank’s latest Melbourne Retail Suburban Strips report shows vacancies across 11 selected prime strips fell from 8.4% to 8.0% in the 12 months to July 2017, the lowest level since mid-2015.
The renowned Chapel Street precinct recorded its first tightening in vacancies since July 2010, although at 12.4% had the second-highest rate. Empty shops in the troubled Bridge Road precinct in Richmond took vacancies in the strip to an all-time high of 21.4%.
The tenancy mix across 11 of Melbourne’s prime retail strips continue to be food retailing, which accounts for 28.6% tenancies. Personal retailing followed at 26.3%, and clothing, footwear & soft goods retailing at 22.5%.
The largest fall in vacancy was seen in Glenferrie Road, Hawthorn, from 10.7% to 6.7%, leading eight of the 11 strips that experienced declines. This was more than the six in the previous 12 months, but the total vacancy rate is well above the series average of 4.6%.
Evergreen Church Street, Brighton returned the tightest vacancy, at 0.6% with just one shop available, down from 4.0% and seven shops. High Street, Armadale was next with a third consecutive decrease, to 3.9%.
Notably, they are two of the four strips with a clear skew towards clothing, footwear & soft goods – the other two being Bridge Road and Chapel Street. The sector accounts for at least 30% of shops in each of the strips.
Glenferrie Road, Malvern eased out from 3.9% to 5.1%, whilst Clarendon Street, South Melbourne tightened to the same rate from 6.3%. Burke Road, Camberwell firmed from 6.7% to 5.6%.
Last year’s title-holder in Toorak Road, South Yarra came out from 2.6% to 6.0%, although this largely due to new shops coming online as part of residential developments at 22-32 Toorak Road and 300 Toorak Road.
Puckle Street, Moonee Ponds came in strongly from 10.8% to 8.1% as vacancies in Acland Street, St Kilda went from 7.5% out to 11.2%.
Knight Frank research analyst, Jane Wong, said incoming tenants were led by personal retailing and furniture & homeware retailing, up by 1.3% and 0.2% respectively. Total tenant churn the strips was down from 13.0% to 6.9%, led by Burke Road and High Street mostly due to tenants repositioning along the retail strip, seeking competitive rents and better locations.
Wong said the increase in demand for furniture and homeware goods stems from the rise in residential development.
“The growing residential population will continue to boost retail trade, particularly food retailing, with a number of residential and mixed-use developments earmarked along Melbourne’s prime retail strips,” she said.
Fitzroys’ recently-released Walk the Strip said residential developments are laying the groundwork for the long-term future of Melbourne’s retail strips.
Fitzroys leasing director Rick Berry said a large proportion of Melbourne’s rapid population growth is being accommodated in the inner- and middle-suburban retail strips and generating sustained local demand, particularly in the hospitality and retail services sectors.
“Melbourne’s population growth has been underpinning all sectors of what would otherwise have been a weak retail leasing market over the last few years,” he said.
Wong said retail turnover growth is forecast to increase at an average of 3.2% between 2017 and 2021 as a result of above average population growth, and the Victorian economy at an average pace of 2.9% in the same period.
“Nevertheless, despite the official cash rate remaining unchanged at 1.5% since August 2016, high levels of household debt combined with limited wage growth have the potential to negatively impact the retail sector going forward,” she said.
Wong noted numerous retailers along Melbourne’s prime retail strips have gone into administration over the past 12 months, including Topshop, Marcs and Pressed Juices, highlighting the increasingly competitive Australian retail market, with the upcoming arrival of Amazon will further add competition.
She said emerging retail locations such as Brunswick Street, Fitzroy; Smith Street, Collingwood; and High Street, Northcote, which currently have vacancy rates averaging at 4.0%, would provide further competition to the 11 strips.
“These emerging retail locations with lower rental costs are recognised for their unique food retailing, vintage and boutique clothing shops as well as alternative feel compared with Melbourne’s prime retail strips,” Wong said.
Investment activity was again led by Church Street, which accounted for $40.4 million in the 12-month period, more than half of the $78 million recorded across the 11 strips from retail sales of $1 million-plus.
This represented an increase from $66.6 million across 19 properties, with local private investors the most active, accounting for 63% of all sales by value.
Australian Property Journal
