Oroton, Decjuba, Aesop commit to blue ribbon strips
A “total change” in consumer spending habits over the past 18 months is pushing rent and capital values in some Melbourne blue ribbon retail strips to new heights, according to an agency which specialises in the sector.
Two key factors are driving it – a cut in overseas travel and people socialising and spending within their local communities.
Government stimulus paid to consumers is also having a positive effect.
The behaviour has resulted in several significant lease deals being struck in recent months, including Oroton renting a 114 square metre shop in High Street, Armadale, and several commitments in South Yarra.
“We’ve also seen investors recognise the inherent strength of the asset class in the face of the pandemic, as evidenced not only by the values being achieved but the volume of under-bidder capital behind each sale,” according to Emmetts Real Estate director Charles Emmett.
Travel money spent locally
“From an occupational point of view, what we’ve seen over the past 18 months is a total change in consumer spending habits,” Mr Emmett said of the retail backdrop.
“With a significant percentage of the workforce either working from home permanently or at least part-time, we are hearing from retailers of an increase in expenditure on coffee, breakfasts and lunches within shopping strips,” the executive added.
“People working from home are also seeking their daily dose of fresh air and physical human engagement in their local retail strip and with surplus time saved from commuting are able to visit multiple produce stores rather than the weekend supermarket shop.
“The biggest benefactor though has probably been the total cessation of overseas travel.
“In the 12 months to March, 2020, it is estimated that Australians spent $65 billion on overseas travel.
“The annual European summer vacation and the shopping spree that would accompany it is no more, at least for now, and retail strips are benefiting,” Mr Emmett said.
“Further to this, consumers are generally still flush with government stimulus,” he added.
Oroton comes to Armadale
Emmetts head of Retail Leasing, Xander Yeo, said strips in exclusive municipalities, like Stonnington, are amongst the strongest performing.
“Whilst there has been a mix of factors driving new store leasing decisions including some musical chairs within strips, the deals are all very positive, involving significant capital expenditure by retailers on new store fit outs and fundamentally reflecting strong confidence,” according to the broker.
“High St, Armadale, remains the most in-demand suburban retail strip in Melbourne,” he added.
The agency has just committed Oroton to #1039 following “a bidding war between four other national fashion and cosmetic retailers”.
“If we had three more similar shops in the street, we’d have leased them in a week but there’s pretty much no availability in the prime section,” Mr Yeo said.
Retail rents in the precinct now range from $1250-$1850 per sqm, per annum – a rise of about 15 per cent since 2019.
Aesop, Decjuba, Gorman upgrade
“The pandemic has also seen several other retailers take the opportunity to expand to larger more prominent premises within the strips they already had a presence in,” Mr Yeo said.
“For all the negativity surrounding retail and particularly discretionary retail, there are some very good brands which continue to perform and attract shoppers,” the agent added (story continues below).
“In many instances we’re witnessing these brands expanding or relocating into better positions within a strip and taking leases over real estate that had previously been tied up on leases to other retailers for 10-15 years”.
One such example includes Decjuba, which relocated from a 100 sqm shop in Chapel St, South Yarra, to a double fronted 160 sqm freestanding building.
Gorman has also rented a 220 sqm space with a wide frontage in the strip – almost twice the size of its outgoing store.
“Its really difficult to secure a double fronted building along Chapel St and there is only a dozen or so in the entire prime stretch that have a frontage of more than six metres,” Mr Yeo said.
Elsewhere in South Yarra, Aesop recently relocated to a Toorak Rd shop opposite its former outlet.
“The new tenancy had character features that really appealed,” according to Mr Yeo.
Sushi Sushi pays premium for prime Glenferrie Road
In Malvern, Sushi Sushi has just leased one of eight tenancies in a building which is presently for sale – 180-182 Glenferrie Rd – paying starting rent of $1230 per sqm, pa.
The restaurant presently occupies a Malvern Central store.
The rate for its new property is substantially higher than the area’s typical range ($500-$1000 per sqm, pa), Mr Yeo said.
“It was reflective of the corner position and proximity to Coles which continued to attract high levels of customers throughout the multiple lockdowns Melbourne has witnessed,” he added.
“Proximity to essential retail anchors has been a major theme over the past 18 months, particularly for quick service and takeaway food offerings that have been able to continue trading,” according to the agent.
Investors following suit
Mr Emmett said that since December, the agency has sold about $90 million of prime retail strip product.
“Investment yields have ranged between 2.2-5.5pc with several retail strips now trading on land rates of $20,000 per sqm in certain high trafficked sections,” he added.
In Glenferrie Rd, Hawthorn, a vacant former Westpac branch collected $11.5m following an expressions of interest campaign contested by 10 parties.
Meanwhile four adjoining double storey shops in Toorak Rd, South Yarra, traded for $13.15m – or $21,452 per sqm on a net initial yield of 2.2pc.
Late last year, an offshore investor outlaid $12.5m for a Priceline pharmacy backed asset at 299-301 Chapel St while a local paid $7.5m for a Commonwealth Bank on 394 sqm next door.
“The recent campaign launch of 180-182 Glenferrie Rd…is also drawing good levels of enquiry,” Emmetts director Andrew Milligan said.
“The position, on the corner of Winter St where it is opposite a Coles supermarket, is considered to be the prime trading spot in the strip,” he added.
More than $7.5m is expected at auction on August 20 – which would reflect a fully let net yield of less than 5.2pc.
Subscribe to our newsletter at the bottom of this page.
