Office-to-retail conversion a growing CBD trend as ground floor space dries up: Colliers International

The decision by Fivex Commercial Property to convert office space on Flinders Street into retail space for Japanese gift and homewares retailer Daiso is likely to herald a trend across Melbourne as large ground floor retail space becomes scarcer. 

The first floor in Fivex's 'Riverview House” across the road from Flinders Station, and previously tenanted by the Commonwealth Bank, is currently being converted into a Daiso store, accessed via escalators. 

The move is in line with Fivex’s plans to reposition the use of the building with another floor in the building being converted into a gym and another is being transformed into a child-care centre. 

A digital advertising board  was recently wrapped around the first floor of the building on the corner of Flinders Street and Elizabeth Street to generate a seperate source of income.

The Daiso deal has an upside for both tenant and landlord: the landlord receives a higher rent for the retail space then he would if it were office space while the tenant pays a lower rent then they would if they had leased a ground floor space, though without the passing foot traffic. 

The lease was negotiated by Ben Tremellen, Colliers International retail leasing manager, who tells Property Observer that international retailers are struggling to find large ground floor spaces in the Melbourne CBD. 

He says new international retailers all require at least 500 square metres of space and they all want to be on Collins Street between Elizabeth and Swanston Street or on the Bourke Street Mall. 

“It’s near impossible to find this sort of foot print,” he says. 

“There are definitely a lot of office landlords seeking to activate the ground floor and level one and provide space for those retailers that can’t get a footprint on the ground floor,” he says. 

Converting from office to retail could also become an option for some office landlords who can’t secure tenants in the lower floors of some of their buildings. 

The Melbourne office market is expected to soften further over 2014 and move increasingly in favour of tenants over landlords. 

BIS Shrapnel forecasting the vacancy rate to hit 10% by the end of the year. 

The Property Council of Australia recorded the highest CBD office vacancy rates in Flagstaff (13.9%), the Western Core (8.2%), Eastern Core (7.1%) and Spencer Street (6.9%) in its most recent office market report.

Retailers seeking prime Melbourne CBD space may also not have the appetite for the high rents charged on Bourke Street. 

According to Knight Frank, "super-prime" rents on Bourke Street Mall range from $7,500 per square metre to $10,000 per square metre.