Fitzroys 2021 Outlook – Suburban Retail Leasing

Posted on 16th February 2021

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Hospitality operators are continuing to dominate retail leasing enquiry throughout Melbourne’s shopping strips heading into 2021.

Service retailers such as health and beauty including nails, hair and skin clinics have also been prominent, according to Fitzroys, while fashion retailers are becoming more active as they are relocating within the strips for better deals.

Pop culture retailers are also seeking opportunities.

In a trend that emerged during last year, food and beverage retailers are particularly seeking properties that have kitchen infrastructure already in place.

“These are leasing quickly as tenants don’t have to plan and put a new kitchen fit-out in place themselves, saving them time and money,” Fitzroys Associate, James Lockwood said.

“Properties that have also had some recent refurbishment works undertaken are proving popular compared to properties that have been untouched by landlords for 10 to 20 years.”

Some 50% of leases currently are to food and beverage operators. That has risen slightly from during last year, when 48% of deals struck between the time Victoria first declared a state of emergency in March and the end of winter were to hospitality tenants.

Lockwood said retail strip properties attract rents from around $50,000 to $75,000 per annum, which can be a more attractive price point for tenants compared to come CBD and inner-city locations.

“Tenants have become more risk averse generally. Smaller, fitted-out spaces have allowed operators to maintain a presence in the market without necessarily having to commit to extensive fit-outs or higher rents for larger spaces.”

Coming into pandemic-affected 2020, food and beverage operators accounted for around 29% of tenants throughout the retail strips, according to Fitzroys research.

“For some, these spaces have also presented a fast and cost-effective opportunity to expand into new locations and markets.

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

“Working from home has become an accepted part of the working week. Melburnians have been visiting their local shopping strips to have a coffee, something to eat, catch up with people and to take a break from their working day,” he said.

“There are a number of city tenants moving out of the CBD and into the fringe suburbs, with the need to be in the CBD not as heightened after the working-from-home period. Hospitality and lifestyle options are high on the agenda for businesses seeking locations, and Melbourne’s shopping strips are likely to benefit from that further increase in the worker and resident catchment.”

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