This was published 9 years ago
Melbourne's small retail strips under pressure
By Nicole Lindsay
Beller director Fred Nucara has his agents tramping the streets of Melbourne counting empty shops so he can explain to his clients why their rents are declining by up to 40 per cent and their shops taking longer to lease.
Melbourne's retail vacancy rates are at all-time highs, with confidence and spending undermined by a storm of adverse events: online purchases, discount factory outlets, the global financial crisis and last year's long election campaign.
The research, undertaken by Beller Commercial twice in the past 10 months, covers some shopping strips rarely studied by the sector.
The burgeoning Smith Street (7.51 per cent vacancy rate), one of Melbourne's oldest shopping strips is included, as well as neighbouring Brunswick Street (7.52 per cent), Fitzroy Street, St Kilda (18.18 per cent) and Whitehorse Road in Balwyn (5.45 per cent).
The lowest vacancy rates were found on Malvern Road, Prahran (2.73 per cent) and the Windsor end of Chapel Street with 2.96 per cent.
Bridge Road in Richmond (between Church and Burnley streets) had the highest rate of 28.22 per cent, followed by shopping mecca Chapel Street, South Yarra, on 17.31 per cent and 15.19 per cent at the Prahran end.
"I say to my clients, have you had a walk down the street lately? There are 10 empty shops near you," Mr Nucara said.
Walking captures more empty shops than checking advertisements on the street or online, he said.
"There are a few reasons why a shop might be empty – the tenants might have moved out but are still paying their rent or the owner may not be ready to advertise it yet," he said.
While some owners have held their shops for decades and can absorb a vacancy period, newer players with mortgages can be in a tougher spot. Accepting a lower rent effectively lowers a property's value and can push it into negative equity.
"Once they agree to a lower rent, it triggers a revaluation which can result in refinancing," Mr Nucara said.
The big shopping strips along Bridge Road and Chapel Street, which dominated the retail market for many years, have hit trouble in the past few years as the long leases held by some big-name retailers expired and were not renewed.
"Some owners have had their heads in the clouds. They've had a spectacular run with tenants on three five-year lease terms. With average yearly rent rises of 3 per cent, the rent has effectively gone up 45 per cent in 15 years. But that's unsustainable.
"Rents have gone down 30-40 per cent. They've got to get a new tenant and start all over again with offers at half the old rent. They need time to adjust to that," he said.
The new vacancy rate for Bridge Road, between Punt Road and Church Street, has fallen to 7.39 per cent from 17 per cent. It's a sign that landlords have started to adjust and renewal has started.
"Retail is always evolving," he said.
While short and funky Acland Street is the best shopping strip in Melbourne, he said, Fitzroy Street around the corner is struggling.
The vacancy rate doubled to 18.18 per cent in the 10 months between December and September this year and asking rents plunged from $1100 a square metre to $500.
"The problem is there isn't a reason to go down there. It's too wide and there are too many restaurants and bars. It's like Bridge Road. It's too concentrated on one thing and that can be as much as a negative as a positive."