Melbourne CBD records heightened demand for retail space
CBRE said basements and lower office floors have become the new target for retailers seeking premium CBD flagship stores in Melbourne, in an environment of low vacancy rates and high rents.
Verity Jenkins, CBRE research analyst, said a scarcity of space meant multi-storey retail is becoming the only viable option for retailers as growth in population density and tourist numbers drives spending in the CBD.
“While vertical retailing isn’t common in Melbourne at present, as the city continues to grow exponentially, we expect this trend to become increasingly prominent,” Jenkins said. “We can also expect to see the transformation of existing office buildings and the change in design of new developments to accommodate the heightened demand for retail space.”
Jenkins said brands would want to operate large flagship stores which offer unique experiences, outstanding customer service and enticing shopfronts to attract and retain customers. However, current vacancy levels and the average size of a ground-floor shop are restricting these opportunities.
A recent example of multi-storey retailing is the expansion of Harrold’s on Collins Street. Due to the department store’s inability to expand into adjacent space, the 700sqm carpark below the store was converted into retail space.
The Melbourne CBD has recorded notably low retail vacancy rates recently, with CBRE’s Q1 2017 vacancy survey finding just 44 out of a total 1,869 stores were vacant.
Zelman Ainsworth, CBRE’s Victorian head of Retail Leasing, stated landlords had become increasingly entrepreneurial in their adoption of strategies such as vertical retailing to extract more income, particularly in light of rising land taxes in Melbourne.
“We have seen this trend in major global shopping precincts and Melbourne landlords are starting to follow suit,” Ainsworth said. “Landlords are turning to vertical retailing to increase their rental income and diversify their tenancy mix by utilising previously idle roof and basement space. This method also enhances the security of their rental income.”
Ainsworth said they have noticed that smaller retailers in particular are capitalising on these opportunities because of their ability to secure a prominent address in the heart of Melbourne’s retail precinct while paying a significantly reduced rental rate in comparison to taking ground floor space.
The Viewpoint report highlighted that a restaurant trading on level one of Collins Street would pay a gross rent of $700 per square metre, while retailers on the ground floor of the same location would pay anywhere between $4,500 – $5,100 per square metre.
Ainsworth added that CBRE had recently concluded a retail roadshow in Singapore and Hong Kong to meet with over 53 international retailers looking to gain entry into the Australian market.
“A number of these brands will be arriving with fresh and creative strategies that will no doubt transform Melbourne CBD’s retail landscape. Strategies include digital frontages, omni channel platforms and activation of common public space,” he said.
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