Melbourne’s Shopping Strips Defy Headwinds,
As Vacancies Reach Long-Term Low

Posted on 03rd October 2023

Melbourne’s shopping strips have seen vacancies hit long-term lows, continuing to perform admirably in the face of economic headwinds as they experience an unprecedented period of development, and as we spend more time in our local villages than ever before.

According to Fitzroys’ new Walk the Strip report – the most comprehensive report of its type – vacancies across Melbourne’s shopping strips came down even further over the past 12 months from their long-term low reached in 2022, falling by another 0.5% to an overall average of 6.2%. The figure is also 1.5% below the long-term average of 7.7%, while vacancies had hit a high of 10.3% in 2021.

Fitzroys’ 2023 edition of Walk the Strip also found:

  • Specialty retail was the major mover, with the proportion of fashion, clothing and footwear, bridal and jewellery tenants increasing by 2.5% to 33.4%, or just over one-third of all shops along the shopping strips. In all, 72% of strips saw an increase in specialty retail.
  • Service retail – including hair, nail and beauty salons, fitness studios and gyms, and medical and allied health services – bounced back to 27.9%, above its long-term average, with 64% of strips seeing an increase.
  • Food and beverage decreased by 3.1% to 30.3%, but remained just above its long-term average, with 78% of strips seeing a small decrease in the sector.
  • The proportion of strips earmarked for development has remained elevated since 2020, and was at 2.2% over the past 12 months, highlighting the proportion of development along two-thirds of all of Melbourne’s strips remaining above the long-term average and driving the transformation of retail strips turning into mixed-use lifestyle precincts.

“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 three-to-five-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.

The changing face of our shopping strips

“The pandemic and its effects on our consumption patterns coincided with the increase in development across Melbourne’s shopping strips, which our data shows has been elevated since 2020,” Lockwood said.

“We expect this to remain elevated. While a number of people made the treechange and seachange move during COVID, Melbourne’s population is again on the growth path and we’re again seeing people wanting to live, work and play in and around Melbourne’s retail and lifestyle strips.

“As well as bringing new retail offerings to the strip, new developments are bringing more residents and office workers to the immediacy of the strip, boosting the immediate catchment and supporting trade throughout all hours of the day – especially when so many are working from home.”

The largest and perhaps most high-profile shopping strip development is the $1.5 billion redevelopment of the Jam Factory on Chapel Street, South Yarra by Newmark Capital, Gurner and Qualitas. The project will deliver 18,500sqm of new retail space, 20,000sqm of offices, 400 apartments, and a 5-star 200-room hotel, as well as an upgrade to the existing cinema complex.

“It’s not only the end result – it’s also the anticipation these developments bring,” Lockwood said. “We’ve seen seen tenants already jostling to get into the strip ahead of the development taking off and Chapel Street, South Yarra’s vacancy has come down to a long-term low of 7.9%.”

High Street, Armadale is a leading example of development enhancing an already-strong performer. Vacancy along the strip has fallen to 2.3% – among the absolute lowest of Melbourne’s shopping strips – which has coincided with new developments bringing quality retailers to the strip and a high development pipeline proportion of 3.2%.

Five current developments on the strip will bring around 115 new apartments to the immediacy of the strip, boosting its prized affluent and established catchment and further supporting trade, Lockwood said.

These are in addition to the recently completed Alara project at 953-967 High Street, which incorporates the circa-1910 State Savings Bank building, and which has transformed this part of the strip. Not only has it brought 19 apartments to the section but created a new food hub – now home to famous Sydney butcher Victor Churchill, as well as popular bakery Ned’s Bake and fast-expanding Japanese salad purveyor Fishbowl.

Bookending the strip, Moda is bringing 26 apartments to 835 High Street, which has also delivered world-famous Lune Croissanterie and popular boutique grocers The Leaf Store to the strip.

“High Street, Armadale is now a legitimate contender for the title of Melbourne’s best-performing shopping strip. A decent part of that has to do with the added activity developments are bringing,” Lockwood said.

He said developments are attracting high-quality tenants for a number of reasons.

“Developers are more accustomed to working with tenants and are now more willing to negotiate on deals. Developers realise the benefit of having a quality tenant on the ground floor in keeping with the prestige of the profile with what’s above it.

“People know about the High Street, Armadale developments because of Victor Churchill, The Leaf Store, and Lune.”

Other notable developments across Melbourne’s shopping strips include Pitard Group’s Dexus-backed EVA on Glen Huntly Road, Elsternwick, which will bring 101 apartments and has delivered brand-new retail space that includes a Guzman Y Gomez and CorePlus yoga and Pilates studio. Meanwhile, on Puckle Street, Penny Lane has attracted more tenants to the south east part of the strip, coincidentally, also introducing Guzman Y Gomez, with a Palace Cinemas soon to open, while several developments in the heart of Hampton Street that will be completed in the coming two years are a big reason why the strip has seen vacancies crunched to just 1.8%.

Toorak Village, which has an enviable seat within one of Melbourne’s most blue-ribbon catchments, is experiencing a transformation with two major developments underway that are spurred by demand for inner-city private family offices. Vicland’s eight-storey $250 million St Germain development, which has just introduced a new Coles Local to the strip and will also deliver a Cecconi’s restaurant, while Orchard Piper has been given the green light for a residential, retail and office project on the corner of Mathoura Road. The catchment will be further boosted by the nearby $400 million luxury apartment project on the Mercedez-Benz dealership site, also by Orchard Piper.

The Salter Brothers’ Candela Ivanhoe will bring 62 apartments to the edge of the Upper Heidelberg Road retail strip, while Manors Gate’s Hawthorn Club has brought 68 apartments and ground-floor retail to the south end of Glenferrie Road.