Melbourne retail leasing market sees varied results: HTW

The wider Melbourne retail leasing market continues to see varied results, according to the latest Herron Todd White (HTW) commercial report.

The valuation firm took a look at the changing face of the retail sector across the nation. 

It suggests Melbourne CBD and inner suburban retail strips have continued to evolve throughout 2018, underpinned by population growth, changes in consumer behaviour and varied consumer confidence.

While some segments of the market continue to experience strong results, likely a reflection of the limited quality stock available, other areas have seen declining rents and tenant demand.

There are a number of factors driving the current trends and changes within the CBD’s retail leasing market.

HTW noted Melbourne City Council has forecast that the population of the CBD will grow by over 50% in the next 10 years, driven predominantly by overseas migration.

"The implementation of vertical suburbs, incorporating ground floor and podium retail uses and upper level residential apartments, is becoming more popular as developers seek to maximise site utilisation and amenity for residents," the report said.

National and international retails are taking advantage of population growth and the centralisation of retailers through the establishment of flagship stores in prime locations, it noted.

Luxury retailers such as Longines, Fendi and Brooks Brothers opened new flagship stores within the CBD in 2018 and Apple’s plans for a global flagship store within Federation Square continue to take shape.

"These retailers appear to be opting for a more centralised model of retailing appealing to consumers demanding a more convenient and interactive shopping experience," HTW advised.

"For larger national and international retailers, this new approach does appear to be working."

It noted demand for retail space within regional and super regional shopping centres has strengthened throughout 2018.

Conversely, smaller retailers unable to sustain the higher rental rates demanded by these centres have struggled with these effects, compounded by the vacating anchor tenants along older retail strips unable to provide the convenient experience modern consumers demand.

"Retail strips such as Chapel Street, South Yarra and Bridge Road, Richmond are continuing to experience a shift away from traditional retailing such as clothing towards service and food based uses," HTW noted. 

Indicative of this shift towards food based services is 6c Daly Street, South Yarra.

The SMÄK Food House (pictured above) only opened in 2016 and joined several other cafe's on Daly Street including Little Frankie's and Fancy Nance.

This is due to numerous factors including retailers now preferring to be located within the Melbourne CBD and major shopping centres such as Chadstone together with increased online shopping for fashion items which reduces the need for a physical store presence.

With the ongoing increase in population due to numerous apartment projects there will likely still be demand for retail space within these precincts for various types of uses, particularly food and service based, on a longer term basis.

"We have been advised by local leasing agents that tenant demand within these precincts has declined in recent years for various reasons. For example, in previous years Bridge Road incorporated a large number of discount clothing and footwear outlets, however many tenants have now relocated to enclosed discount outlet centres such as Direct Factory Outlets (DFO) in South Wharf and Essendon, " the HTW report said. 

Landlords have continued to seek increasing rentals and these have generally become unaffordable for tenants. Retail rents have declined substantially over the last few years and in some instances by over 40%.

Local leasing agents have advised that quantum of money and affordability are major considerations for tenants within these strips, particularly local retail operators.

A South Yarra corner property with dual street frontage is now on the rental market with the price of $60,000 per annum. 

Located at 448 Chapel Street (pictured above) it features 163 square metre floor area and rear access from Elllis Street.

Another example on the Chapel Street strip is 352 Chapel Street, South Yarra.

Set on 320 sqm it is a fully fitted cafe/restaurant ready for a new tenant.

The two floor rental listing is held by James Spencer of Fitzroys and was previously tenanted by the restaurant Chinacy.