2020 Half Year Review - Hospitality

Posted on 19th August 2020

Food and beverage operators seek ready-to-go spaces

Food and beverage operators are showing a greater appetite for retail spaces that allow them to readily take advantage of the increased takeaway and home delivery demand that has been fast-tracked in recent months.

Smaller retail spaces across Melbourne are being snapped up by food and beverage operators adapting to changes in the hospitality sector, according to Fitzroys, with a particular attraction to those already fitted out.

Fitzroys has secured 72 leases since the State of Emergency was declared, including 45 retail deals. Fitzroys Associate Director, James Lockwood said 48% of these had been to hospitality tenants, and almost all had taken place throughout Melbourne’s famous shopping strips.

“This is quite amazing considering the restrictions have affected a number of cafés and restaurants,” he said. Coming into this year, food and beverage operators accounted for around 29% of tenants throughout the retail strips, according to Fitzroys research.

Ready to go

Lockwood said more operators are opting for smaller spaces that can offer quick meals and are more conducive to takeaway and delivery service.

“Use of delivery services such as UberEats and Deliveroo have been on an upward trajectory for some time, and this has been fast-tracked during the COVID lockdown.”

Lockwood said enquiry from the food and beverage sector is bouncing back as operators actively seek the emerging opportunities to adapt to the changing environment a capture existing and new markets.

He said properties with existing kitchen infrastructure are moving quickly.

“Smaller, fitted-out spaces allow operators to maintain a presence in the market without necessarily having to commit to extensive fit-outs or higher rents for larger spaces.”

Lockwood said an added attraction of retail strip properties of these types often attract rents from around $50,000 to $75,000 per annum, as opposed to leases at circa $100,000 per annum in the CBD.

“Tenants are risk averse and almost all leasing transactions have been struck under $100,000 as tenants are not willing to take on higher rentals.”

Lockwood said the focus on leases throughout Melbourne’s shopping strips had been further spurred by more people working from home and shopping locally.

“There is the possibility that people will be working from home more often in the future. People have been reconnecting with their local communities, and at the centre of those are Melbourne’s shopping strips.

“Operators are recognising this, and confidence in the future of the suburban retail strips has returned. Most leases are being struck on extended terms.”

New opportunities

Lockwood and Fitzroys colleague Mark Talbot recently negotiated the five-year lease for a 100sqm space at 198 Glenferrie Road, Malvern to Pizza 888 at $54,000 per annum. The deal represents Pizza 888’s fifth store, which will serve the business’s takeaway concept with minimal seating, demonstrating the move in the hospitality sector from operators with large dining areas towards more agile spaces.

The Glenferrie Road shopping strip has also seen a new Italian restaurant, Assaggi Italiani, lease the fitted-out 99 Glenferrie Road space at $75,000 per annum, and ice creamery ScoopyDoo Gelato open up at 225 Glenferrie Road.

Also among the latest deals is a Pakistani restaurant based in Fawkner that is also expanding to a new catchment, moving quickly to lease the fitted 48sqm space at 142 Rathdowne Street, Carlton. Fitzroys’ Ervin Niyaz negotiated the long-term six-year lease with a five-year option at $500 per sqm. He said a neighbouring business serving similar cuisine had relocated, and there was a gap in the market the new tenant identified.

“The new tenant acted quickly to snap it up, and deal was put together within one week of their inspection,” Niyaz said.

“It is telling that the business has made its first expansion move during the COVID-19 period, and to a smaller-format site in a new catchment.

“This reflects the desire from operators to secure smaller spaces that allow them to maintain and expand their presence in the market, without having to commit to comprehensive fit-outs or higher rents for larger spaces.”

On popular Glenferrie Road, Hawthorn, Fitzroys has just secured two new leases to hospitality operators at small fitted-out spaces.

Tom Fisher leased a 35sqm space within the Lido Cinemas complex at 679 Glenferrie Road for 3+3 years to another expanding business, The Cookie Box, which will follow its maiden store in Windsor with a super-prime location. Rents in the complex can be circa $1,300 per sqm depending on size and position.

A short distance away, at 642 Glenferrie Road, Fisher also secured 99 Pancakes for a 4+4- year lease 50sqm corner space at $42,000 per annum net to serve desserts and sweets such as pancakes and profiteroles for dine-in and takeaway.

“Deals along Glenferrie Road, Hawthorn demonstrate the enduring role of Melbourne’s shopping strips as a focal point of communities,” Fisher said.

Niyaz has also leased a warehouse-style space in 12 Hinkins Street, Moonee Ponds to New York Pizza Department Pty Ltd, operated by an experienced tenant who has owned a pizza business in Thornbury for several years, amongst other ventures in the north and western suburbs.

“The property has good bones, with an existing commercial kitchen and fit-out. This will allow the tenant to quickly start operating, with their focus set on takeaway and a dark kitchen concept to weather the COVID period.”

The 300sqm space was leased at $44,000 per annum on a secure 5+5+5-year deal. Niyaz said the property is positioned in a surging location, a short distance from the high number of residential and commercial developments that are reshaping Moonee Ponds.

Meanwhile, Lewis Waddell of Fitzroys has leased a fitted restaurant space at 151 Commercial Road, South Yarra space to a Mediterranean eatery for $55,000 per annum plus outgoings and GST, which will likewise have an emphasis on its takeaway options.