“Working-from-home and flexible working arrangements have created a fundamental shift in Melburnians’ relationship with their shopping strips. We are spending more money closer to home and spending more time at our local villages than ever,” said Fitzroys Division Director, James Lockwood.

“This hyperlocality has evidently offset some of the impact of a consumer spending slowdown, as high inflation and rising interest rates affect people’s spending habits.

“Inflation has passed its peak, and most economists are expecting only one or two further interest rate rises in this cycle from here. Spending is slowing but working from home is here to stay, which means that a great deal of spending will still be concentrated on the shopping strips.

“Non-essential spending may continue to be affected, but there’s still a conversation about how people feel good about themselves – that might be people turning the heater off while they head out for a coffee, treating themselves to a haircut or manicure, or taking that yoga or Pilates class.”

Church Street, Brighton On Top Again
For yet another year, Church Street, Brighton lay claim to the lowest vacancy rate in Melbourne, at just 1.1%. Hampton Street, Hampton was a major mover, into second spot at 1.8%, as new development is energising the strip and attracting retailers to future renewed locations. High Street, Armadale is challenging for the title of Melbourne’s best-performing shopping strip with its roll call of high-end boutiques, specialty food offerings and new developments, with a current vacancy rate of 2.3%.

Lockwood said landlords increasingly meeting the market has helped facilitate deals and fill spaces.

“Landlords are definitely meeting the market – they’ve been more open to transact, more willing to do a deal. It’s likely they were conditioned during the turbulence of the past few years. Landlords and tenants are definitely now more closely aligned when it comes to rents,” Lockwood said.

Lease profiles have also changed over the past 12 months.

“We’re seeing more 3-to-5-year deals after many tenants sought shorter-term leases during the throes of COVID. Tenants are clearly showing more confidence going forward and signing longer-term leases.”

Lygon Street, Carlton – one of Melbourne's most famous dining strips – saw vacancies decrease again, now sitting at 6.0%, having surged to 20.0% in the depths of COVID. Glen Huntly Road, Elsternwick reaffirmed its status as one of Melbourne’s rising stars with a vacancy of just 2.0%. The specialty retail rebound saw Chapel Street, South Yarra vacancies improve from 10.7% to 7.9% - the first time in years the strip has recorded single-digit vacancies.

Puckle Street, in the centre of the Moonee Ponds development boom, increased slightly but remained at a low 3.9%. The return of the rhythm of Melbourne’s dining, arts and nightlife scenes helped vacancies along inner-north mainstays Sydney Road, Brunswick, Brunswick Street, Fitzroy and Smith Street, Collingwood decrease to 4.4%, 4.6% and 4.8% respectively, and in High Street, Northcote to 3.9%.

Dynamics Realign With Pre-COVID Trends
The dynamics of Melbourne’s shopping strips have realigned with their pre-COVID trajectory. In 2019, as detailed in that year’s Walk the Strip report, service retail was the major mover, up to 28.9%, and the sector has bounced after falling to 26.0% during COVID, as people baulked at close personal contact.

“Service retail is back,” Lockwood said. “The concerns aren’t there anymore. People’s wariness about close contact has gradually subsided and this has been to the benefit of hair and nail salons, skin care clinics, and wellness studios.”

“We’ve seen enquiry in the health and fitness space move away from 24-hour gyms and towards wellness studios with personal training approaches, as well as yoga and Pilates offerings.”

Meanwhile, specialty retail and food and beverage have realigned with their long-term averages. Leasing activity in Melbourne’s shopping strips during COVID was dominated by food and beverage operators, who were quickly snapping up fitted-out spaces to service the surging demand for nearby food and delivery services as Melbourne jumped in and out of lockdowns. The food and beverage cohort fell 3.1% over the past 12 months to 30.3% amid high levels of competition, growing operating costs – which have nearly trebled since 2015 – and increased kitchen fit-out costs, while some are dining out or ordering food less often. Still, the food and beverage proportion remains just above the long-term average.

Leasing activity among specialty retail tenants returned in a big way to the shopping strips, up 2.5% to 33.4%, almost equal to its 2019 and long-term average figures.

“While the latest Australian Bureau of Statistics data shows a drop in turnover in the clothing, footwear and personal accessory retailing category, landlords meeting the market has allowed more discretionary retailers to take up space on amicable terms,” Lockwood said.