Fitzroys 2022 Outlook: Suburban Retail Leasing

Posted on 09th February 2022

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Attractive Conditions For Tenants Furthers New Cycle of Leasing

More attractive rental conditions throughout Melbourne’s shopping strips are being seen in a new cycle of leasing activity, and tenants are showing more confidence in the trading environment by committing to longer leases again.

Famous Chapel Street, South Yarra continues to be the bellwether for this shift, according to Fitzroys’ Senior Manager - Agency, Lewis Waddell.

Waddell has leased 517 Chapel Street to Eternal Bridal, which is notably moving from High Street, Armadale, while men’s clothing label Calibre has become the latest retailer to optimise its position in the area in its leasing of 543-545 Chapel Street.

Waddell said Eternal Bridal was motivated by the rentals and regeneration of Chapel Street in making its move.

“Here we have more evidence of the impact of the cyclical shift in conditions. In addition to retailers already positioned on or around Chapel Street looking to optimise their position, we are now seeing tenants finding the rent and demographic opportunities on Chapel Street appealing enough to make the move from a different location altogether,” he said.

“South Yarra still has the fundamentals of strong, established catchment in an affluent and easily accessible area, a strong residential and commercial development pipeline, and now, affordable rentals and strong incentive levels.

“This is more and more attractive for tenants across Melbourne.”

Waddell noted this particular deal is actually a reversal of the trend that emerged in the mid-2000s, as some Chapel Street retailers began to make the move to the then-more affordable High Street, Armadale, which has a heavy presence of bridal wear stores. Eternal Bridal’s new home is close to another bridal wear store, Kyha Studios.

Meanwhile, Calibre is moving from down the road to a higher visibility store and closer to Toorak Road. Waddell said this was the latest example of tenants using the shifting conditions to move within strips to secure more prime positions, or to take up larger spaces, or expand into adjoining properties.

Waddell has secured a string of new deals recently along Chapel Street that have followed the same trend. National menswear tenant M.J. Bale is relocating from nearby to a larger store at 558 Chapel Street with a more prominent shopfront, while fashion accessories retailer Trollbeads moved from their shopping centre tenancy to 540 Chapel Street, following fashion label Maatsuyker’s recent move from Greville Street to 574 Chapel Street.

On the other side of the street, Thurston and Howell are relocating within the strip closer towards Toorak Road, to 495 Chapel Street.

Waddell noted that while landlords have been meeting the market on rents, incentives have started to compress as lockdowns appear to be in the past, with circa 20% incentives now closer to 10% to 15% incentives.

“Typical lease terms are back to three to five years rather than one to two years, which we saw during lockdowns. Tenants have more confidence in signing longer leases again.”

He said the Omicron wave had made little impact on suburban retail strips and retail enquiry had picked up early in the new year.

Hospitality operators remain prominent

Hospitality operators have continued to play a prominent role throughout Melbourne’s suburban retail leasing landscape into 2022.

“Hospitality venues with kitchen infrastructure already in place remain in strong demand, continuing a trend we’ve seen throughout COVID as businesses looked to quickly set up or expand into new markets and take advantage of the heightened demand for delivery services,” Waddell said.

According to Fitzroys’ latest Walk the Strip report, leasing deals to hospitality tenants were accounting for half of all retail deals deep into 2021, well above the circa 28% proportion of Melbourne’s shopping strips that are leased to food and beverage operators.

Waddell noted that staff shortages had become a real challenge to operators, making it harder for businesses to commit to leases. Despite this, along with service operators, they remain the most prominent in enquiry. The issue is expected to be alleviated with the reopening of international borders and easing of the Omicron wave.

“Enquiry across the board picked up very quickly as restrictions began to ease, and when inspections were allowed, it was extremely busy up heading into the end-of-year break.”

Supermarket locations popular

Waddell said supermarkets and specialty food retailers have been major drivers of demand throughout the COVID period, as they have remained open during lockdowns and added more visibility to nearby retail spaces.

“Hawksburn Village near Woolworths is a good example – shops surrounding the supermarket are mostly food and service operators on that side of the street. There is a number of operators looking to get into that location where there is little vacancy.”

On High Street, Armadale, the Alara development at 959 High Street has transformed this part of the street by introducing famous butcher Victor Churchill, while popular bakery Ned’s Bake has also joined this development and the final two shops have been leased to national operator Fishbowl.

“Typically, High Street, Armadale was mainly fashion, bridal and furniture but this section will be a food hub,” Waddell said.

He added that shops on corners have also been popular, also due to their greater exposure.