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Food services to drive recovery in strip vacancy

17-May-2017


Church Street Brighton (Google Images)

May 16, Melbourne – Total vacancy across Melbourne’s ten key retail strips has risen dramatically from 7 per cent to 9.2 per cent, over the 12 months to April with Church Street Brighton recording the lowest vacancy of 4.1 per cent, however vacancy is expected to recover on the back of growth in food services retailing, according to Savills latest research.

The research, by Savills Associate Director Research Monica Mondkar, found Glenferrie Road, Hawthorn was next best at 5.3 per cent (2.1% in 2016) and Centre Road Bentleigh was not far behind at 5.5 per cent (5.1%), while, predictably, Bridge Road, Richmond recorded 15 per cent vacancy up from 13.6 per cent. This included the withdrawal of 42 stores for residential conversion. Puckle Street and Toorak Road, in both South Yarra and Toorak, also recorded substantial vacancy rises.  

Ms Mondkar said the strips had largely been impacted by falling consumer confidence and growing online sales, which had particularly impacted the fashion industry, however a surge in the number of café/food & groceries stores was expected to drive a vacancy recovery. 

"These figures are hardly surprising given the well-publicised woes of smaller retailers and recent figures which point to consumers holding tighter their purse strings as they battle mortgage and rental stress.

"While food and café and restaurant sectors have seen substantial growth, it is the fashion industry, along with a decline in household goods stores, that has been the key to the rise in vacancy.

"That said we expect vacancy to steadily recover as the number of cafes, grocery stores and services continue to grow in line with the surge in Melbourne’s inner city population, filling vacancies left by fashion and household goods stores,’’ Ms Mondkar said. 

ABS data shows Australian retail trade growth in the 12 months to March of 3.14 per cent, was the lowest since March 2012 at 2.55 per cent. Similarly Victorian retail trade growth in the 12 months to March (3.57%) was the lowest since March 2014 (3.46%). 

At the same time online retailing grew by 9 per cent year on year to March with Australians spending $22.23 billion on online shopping, equivalent to 7.3 per cent of spending at traditional bricks & mortar retailers as measured by the ABS in the 12 months to February 2017. 

Viewed over the longer term – 2012 to 2017 - the research found of the 2618 shops surveyed, the Cafes, Restaurants & Takeaway Food Services category had seen the largest increase of 16 per cent from 484 shops to 581 shops, and Services was up 12 per cent - 545 to 609 shops - while Clothing, Footwear & Accessories saw a massive 27 per cent or 213 store decrease to 568 stores. Household goods also fell a notable 24 per cent.

Ms Mondkar said the fashion decline had, prima facie, been a suburban phenomenon with Savills retail data showing a 17 per cent rise in the number of CBD fashion stores at the time of a 27 per cent decline over suburban strips, however the CBD gain could be explained by the influx of international brands over recent years especially at the new and refurbished shopping centres, Emporium and St Collins Lane.

"The figures appear absurd on face value but we have seen a massive arrival of foreign fashion houses to Melbourne’s CBD over the last three to four years and the arrival of one has attracted others like bees to a honey pot. Melbourne, Australia’s fashion capital is also a market which has been underpinned in recent years by a rise in tourism led shopping and the significant rise in the CBD population," Ms Mondkar said.

She said the reason for the fall in the number of household goods stores on suburban strips anecdotally reflected a preference for shopping at larger centres where parking and the number of stores provided accessibility, convenience and choice. 

Notable leases among the most popular fashion strips included Australian fashion designer Anna Hoffman, bridal jewellery designer Stephanie Brown and national fashion retailer Scanlan Theodre were the latest entrants opening up new stores along High Street Armadale where Clothing, Footwear & Personal Accessory retailing accounts for 32 per cent of stores.

Church Street Brighton and Burke Road Camberwell, the two other high performing fashion strips, recorded fashion at 28 per cent and 27 per cent respectively, while, national retailers Wittner Shoes, Gorman and Nique opened up stores on Church Street Brighton and Zeira shoes and CUE leased new shops along Burke Road Camberwell.

Low yields around 3.5 to 4.5 per cent more common  

Ms Mondkar said yields and rents varied widely according to the particular attributes of the strip.

"Strip retail, especially suburban strip retail has long been a favourite of the small investor and in recent years that focus has intensified with the emergence of the SMSF and of course record low interest rates.

"Yields have always been tight in these markets but those factors have seen even further downward pressure to the point where yields around 3.5 to 4.5 per cent are now much more common,’’ Ms Mondkar said.

"Rents can vary dramatically between precincts and indeed, in some cases, within precincts  They are very much about the location, the position within the location and current vacancy levels," she said.

She said rents for strip shops in the best strip locations generally ranged between $800 and $1200 a square metre.   


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