This article is from the Australian Property Journal archive
MELBOURNE’S lifestyle shopping strips are undergoing a period of stabilisation in 2024, with vacancies remaining well below the long-term averages as Melburnians face high inflation, high interest rates and the cost-of-living crisis.
According to Fitzroys’ latest Walk the Strip report, shopping strip vacancies in Melbourne came in at 6.3% in 2024, just above 2023’s long-term low of 6.2%.
While experiencing a period of stabilisation, the average vacancy rate still remains well below the long-term average of 7.4%.
With 37 strips surveyed in the report, 26 strips or just over 70% recorded a rate under the long-term average. With strips seeing an increase or decrease over the year basically split down the line.
“What has kept the strips thriving are the fundamental changes to the way we live our lives in 2024. Working from home is the main driver, which has supported suburban business as greater numbers of Melburnians go to their local villages to get a coffee, something to eat, go to the gym or do a pilates or yoga session, or get their hair and nails done,” said James Lockwood, associate director at Fitzroys.
“It’s also that feel-good factor that we’ve seen post-COVID. People still want to be able to treat themselves and feel good about themselves. And they’ll do that by popping down to their local village.”
By category, food and beverage rebounded over the year, making up 30.9% of Melbourne shopping strips.
While service retail remained resilient, rising again to a near long-term high of 28.1%, with speciality retail also increasing to 34.0%.
At the same time, the share of development sites on strips fell from 1.5% to 0.7%, with many projects reaching completion.
“Rarely have they had a more even complexion of offerings between specialty, service and food and beverage, and there are hints that they have reshaped back towards a similar mix that was seen pre-pandemic,” added Lockwood.
Lockwood also noted the increase in barber and hair salon leasing deals, with fears concerning person-to-person contact fading from the lockdown era.
“Hospitality tenants continue to be the most active in our enquiry and in our deals. The trend began during COVID when tenants began snapping up smaller fitted-out spaces, which provided a capital- and time-effective opportunity to open up to new markets within a locked-down Melbourne that had seen a huge increase in demand for takeaway meals,” said Lockwood.
“We’ve seen the huge take-up of hospitality tenants since COVID, as operators look to move in quickly and on fitted spaces that allowed for a faster and more cost-effective entry into new markets amid heightened demand for takeaway services.”
With high-end hospitality fit-outs costing as high as in the $5,000 to $7,000 per sqm range currently.
Shopping strips have also been supported by Melbourne’s population growth, with an increase of 3.3% for the year or 167,500 people, according to the ABS.
Shopping strip landlords have also been reported as more willing to get deals done, more willing to listen to real estate agents and more willing to meet the market on rental rates.
“Feedback from new tenants on Chapel Street suggests businesses have seen rents recalibrate in the wake of the pandemic, and they are looking to position themselves in well- supported locations ahead of the curve. They are also anticipating more favourable economic conditions and lower interest rates in 2025 and 2026,” added Lockwood.
“Landlords are also more flexible when it comes to lease terms, so we’re seeing a range of shorter and longer-term deals being struck that are more amiable to tenants’ needs.”
Lowest Vacancy Rate Strips
Church Street in Brighton once again held the title of lowest vacancy rate of any of Melbourne’s strips, at just 0.7%. This rate reflects just one empty shop effectively.
With the strip’s rental rates at circa $1,300 to $1,400 per sqm.
“It’s also traditionally commanded among the highest rents, with a long queue of high-end boutiques and national traders jostling to get into the supply-constrained strip which services one of Melbourne’s most affluent and established catchments,” said Lockwood.
High Street in Armadale recorded another low rate at 2.3%, and is also the strip with the highest rents, reaching as high as $2,000/sqm.
Puckle Street in Moonee Ponds is experiencing a generational boom, with the recently completed Penny Lane development and the current $2 billion redevelopment of Moonee Valley Racecourse.
The boost to the immediate catchment has seen the vacancy rate come down to a long-term low of 3.1%.
With Smith Street, Collingwood also see a boost in trade from both residential and commercial developments, resulting in a low vacancy rate of just 3.2%
Lygon Street in Brunswick East was named the sixth Coolest Neighbourhood in the World for 2024 and is the newest addition to the Walk the Strip series, with a vacancy rate at just 3.7%.
One of the country’s most famous shopping strips, Chapel Street, South Yarra, recorded a long-term low of 7.1%, after sitting at 20.4% in the lockdown era of the pandemic.
Swan Street, Richmond again posted a single-digit vacancy of 7.2%, with Acland Street St Kilda seeing the biggest improvement falling 3.4% to single-digit status, at 9.4%.
