Melbourne Shopping Strips’ Sensational Rebound

Vacancy rates across Melbourne’s famous shopping strips have come down to below pre-COVID levels, amid a sensational recovery led by cafés, eateries, restaurants and bars taking up space across the suburbs.

According to Fitzroys’ latest Walk The Strip report, the average vacancy rate across 36 of Melbourne’s key shopping strips came down from 10.3% in 2021 to a long-term low of 6.7% in 2022.

Vacancies had averaged 7.6% in years leading up to COVID, and had been as low as 6.8% in 2018, before peaking during COVID as the city endured multiple lockdowns.

Walk The Strip found:

• The average proportion of food and beverage tenants along the strips has reached a record-high of 33.4% – accounting for 1/3 of all tenancies for the first time. The report shows 89% of shopping strips saw an increase in the proportion of food and beverage tenants over the past year, at an average gain of 5.8%, with both of those figures historic highs. Some 86% of strips now have a food and beverage representation that is higher than the long-term average.

• Specialty tenancies hit a long-term low, having fallen from 37.7% in 2017 to 30.9%, and 72% of strips have seen decreases in the proportion of specialty tenants since the eve of COVID.

• The presence of service retail has dipped by nearly 3% to 26% since 2019, as hair, beauty and nail salons and gyms were shuttered during the lockdowns, but the current proportion is higher than 2017 and 2018.

• Rent collection has returned to pre-COVID levels.

• Vacancies from earmarked developments now make up 3.1% of shopping strips.

“Melbourne’s local shopping strips have well and truly bounced back from the biggest crisis the city has faced in decades,” said Fitzroys Division Director – Agency, James Lockwood.

“Melburnians have spent more time than ever in their local communities. Lockdowns, and then the embrace of flexible work arrangements, have seen more Melburnians spending their money close to home and our villages have reinforced their position as the heartbeat of their local communities. Our strip centres provide an environment in which people want to shop and find community.”

Lockwood said the food and beverage-led recovery has gained momentum throughout the pandemic.

“A spike in eateries with a focus on takeaway and delivery was the first visible leasing response to COVID in Melbourne’s shopping strips, as operators sought to move into smaller spaces with existing kitchen infrastructure.

Businesses initially sought to take advantage of these opportunities to expand and establish themselves in new markets as demand surged for takeaway and delivery during lockdowns, and this has continued through the period of flexible working arrangements,” he said.

“Melburnians have been spending money at their local shopping villages, buying their coffee and their lunches from their local cafés and eateries, which then also extends through to evening offerings for dinner and dessert,” Lockwood said.

New research from Roy Morgan shows more than 7 million Australians aged 14 and over (33.4%) now use meal delivery services such as Uber Eats, Menulog and Deliveroo in an average 3 months, up from 3.6 million (16.9%) in early 2020. As a result of the extended lockdowns, 40.2% of Melburnians use the services, well above the national average.

“Many businesses could stay open and serve takeaway options, whereas specialty and service retailers had to remain closed through lockdowns. Specialty and service retailers then had to reopen and build their business again, so many have concentrated on that rather than taking up new stores. Food and beverage operators, meanwhile, have been able to keep expanding and entering new markets,” Lockwood explained.

“A number of food and beverage operators saw their business as ‘COVID-proof’ through operating in lockdown, and as we’ve transitioned to a COVID-normal environment they’ve actually seen an increase in turnover.”

The latest Australian Bureau of Statistics data shows the 4 months to the end of July were the 4 biggest months for takeaway food turnover ever in Victoria, while the 5 months to the end of July have been the biggest for the cafés, restaurants and catering services sector.

“We’ve had multiple operators state they don’t require a lot of seating and are happy for a predominantly takeaway business. We’re starting to see some that will look at converting a premises into food and beverage given how reliable business has been, but on the whole food and beverage operators continue to have a preference for taking fully-fitted spaces to save costs on fit-out – the rise in construction costs are affecting everyone, and that extends to retail fit-outs.”

Retail strip properties typically attract rents from around $50,000 to $75,000pa, which Lockwood said is an acceptable price point for tenants who have generally become more risk-averse and premises with minimal tenancy works are being received better than those requiring a full refit.

Securely-Leased, Tax Effective Investment With Huge Future Potential
Investors have the chance to purchase a low risk, high yielding investment with outstanding tax benefits and a significant land parcel positioned in a high-growth area.

Fitzroys Director Paul Burns and Division Director - Agency, Chris James are marketing 446 Maroondah Highway via Expressions of Interest closing 4 November at 12 noon.

Price expectations are in the $10 million-plus range.

The large, elevated corner site of 6,229sqm, zoned Commercial 2, comprises a 2-level 2,412sqm fully-leased building plus a very generous carpark allocation (100 bays) and 100 metres of street frontage. It is being offered with a brand-new 10+5+5-year lease to national company Belgravia Health & Leisure, accounting for 96% of the income.

Belgravia, which has 170 sites across Australia and New Zealand will operate 3 businesses on site - a Genesis Fitness Centre, Jump Swim School and Pursuit martial arts school.

Lilydale Hair Co occupies the balance of the property (85sqm) on a new 7-year lease.

The building has undergone a $3 million renovation and will return $532,000 per annum net. The Weighted Average Lease Expiry (WALE) is almost 10 years.

“Investors are looking for security and cash flow in the current environment. This is a fantastic opportunity to acquire a low-risk, high-yielding investment with a long WALE and enormous future potential,” Burns said.

“Whilst the property has a long-term tenant, it is comforting to know that there is a significant surplus of tenant demand from name brands such as Kia, MG and Total Tools. These and other tenants are looking for representation in Maroondah Highway, Lilydale, however, there are no vacancies. This is likely to result in ongoing rental growth as tenants outbid one another for any alternatives that arise.”

He added, “The significant building upgrade which has just been undertaken avoids the need for much or any capital expenditure, as well as providing outstanding tax depreciation benefits”.

Burns also noted that the entirety of the income is derived from a site coverage of just 27%.

“Whilst the property is fully-leased long-term, it is significantly underdeveloped. This property offers one of the best land bank propositions in an area that’s earmarked for a period of rapid growth.

Investors will be able to enjoy a secure income stream from a recognised tenant while assessing the value-add and development options encouraged by its location within a Major Activity Structure Plan.”

The property’s future development and value-add potential is boosted by the Lilydale Major Activity Structure Plan (2019), which encourages higher density uses in the precinct. The property is located within the Plan area, which will see demand for an additional 10,000sqm of retail floorspace and 11,000sqm of commercial floorspace over the next 15 years.

The property is next to Toyota and is surrounded by other major automotive dealers and large format retailers such as Holden, Sangyong, Suzuki, Pedders, Supercheap Auto, Repco, MycarTyre & Auto, McDonald’s, KFC and Ampol.

Burns said Lilydale has become an important commercial centre in its own right, and is the gateway to the famous Yarra Valley food and wine region, one of Victoria’s premier tourist destinations and which is experiencing significant growth.