RESEARCH

MELBOURNE RETAIL SUBURBAN STRIPS JULY 2017

Vacancy across Melbourne’s prime retail strips decreased for Key Facts the first time in two years as the growing residential population Vacancy across Melbourne’s continues to drive demand, particularly for food retailing. prime retail strips decreased from 8.4% to 8.0%, the lowest level since July 2015. Retail turnover and retail trade in Economic Overview continues to be underpinned by strong Bridge Road, Richmond Victoria’s economy continues to outperform residential population growth. The latest recorded the highest the national average, with State Final ABS census results show that the Victorian vacancy rate, increasing to Demand growing at a pace of 4.5% year-on residential population increased by 10.7% in an all-time high of 21.4%. -year to March 2017. the five years to June 2016 to reach 5.9 million. Victoria is currently the nation’s Melbourne’s prime retail strips Retail turnover in Victoria in the 12 months fastest growing state, with an additional are dominated by food to May 2017, as measured by the Australian 2,000 residents entering the state per week. retailing, accounting for Bureau of Statistics (ABS), increased by 28.5% of the total tenancy 5.1% compared with 4.2% in the preceding mix. In addition, Victoria continues to attract 12 months. large tourism volumes, with total inbound Retail suburban asset sales tourism numbers increasing by 7.7% to totalled $78 million in the 12 Despite showing signs of slowing nationally, reach 2.7 million over the 12 months to months to July 2017, up by retail trade in Victoria continues to March 2017. Chinese tourists continue to 17.1% from the previous year. outperform other states. Retail trade totalled lead the influx. $6.4 billion in the 12 months to May 2017, up from $6.1 billion in the preceding 12 Nevertheless, recent increases in mortgage months. Growth was supported by rates and electricity costs combined with increases in pharmaceutical, cosmetic & high levels of household debt and limited toiletry goods (14.9%), footwear & other wage growth remain a threat to the retail personal accessory retailing (14.3%) and sector going forward. Westpac recorded a JANE WONG furniture, floor coverings, houseware and fall in the consumer confidence index in the textile goods retailing (11.4%). Research Analyst 12 months to June 2017, down by 5.8% to 96.2.

Vacancy lowest vacancy rate, sitting at 0.6% with competition from Direct Factory Outlets just one shop available. This compares to and shopping centres in the CBD The vacancy rate across Melbourne’s 11 a vacancy rate of 4.0% across seven attracting international retailers. prime retail strips declined for the first available shops at the equivalent period in Additionally, the introduction of tram time in two years, falling from 8.4% to 2016. Church Street, Brighton saw tenant super stops along the retail strip 8.0% in the 12 months to July 2017. commitments from retailers such as Nike, combined with changed parking Vacancy levels decreased across eight Princess Highway and Wittner Shoes in regulations have reduced the number of out of the 11 prime retail strips compared the 12 months to July 2017. parking spaces, limiting accessibility and with six in the preceding 12 months. pedestrian foot traffic. Nevertheless, vacancy remains well The vacancy rate along Chapel Street, above the series average of 4.6%. South Yarra fell for the first time since Elsewhere, Toorak Road, South Yarra July 2010, down from 13.5% to 12.4% in recorded an increase in vacancy, up from Glenferrie Road, Hawthorn recorded the the 12 months to July 2017. 2.6% to 6.0% in the 12 months to July largest decrease in vacancy, falling from Nevertheless, vacancy levels remain 2017. The rise in vacancy was brought on 10.7% to 6.7%. The growing secondary above the long-term average of 8.6% and by seven shops coming online, having and tertiary student population continues the second highest across all of recently completing construction as part to support the retail mix along Glenferrie Melbourne’s prime retail strips. The fall in of residential developments at 22-32 Road, with food retailing (41.1%) vacancy was a result of 39 shops being Toorak Road and 300 Toorak Road. accounting for the majority of shops along leased in the 12 months to July 2017, the retail strip. In the 12 months to July with take-up more prominent between Vacancy along Acland Street, St Kilda 2017, tenant commitments from food Commercial Road/Malvern Road and also increased, up from 7.5% to 11.2%, retailers included , Grosvenor Street. Of the 43 vacant underpinned by food retailers, including and Lord of the Fries. shops, nine shops have recently received Church Street, Brighton recorded the planning approval at 402-416 Chapel Street for a mixed-use development FIGURE 2 TABLE 1 comprising of 40 or more apartments and Retail Strips Tenancy Mix Retail Strips Vacancy 174 hotel rooms. % of number of shops by street

By street/strip as at Jul 17 (%) Vacancy along Bridge Road, Richmond Retail Strip Jul-16 Jul-17 increased for the second consecutive High St, year, reaching 21.4%, the highest level 6.4% 3.9% Armadale since the series began in 2007. The increase was underpinned by seven Church St, 4.0% 0.6% discount clothing shops vacating their Brighton premises including R&B Outlet, Overseas

Burke Rd, Designer Warehouse and 10 Dollars CLOTHING, FOOTWEAR & SOFT GOODS 22.5% 6.7% 5.6% FOOD RETAILING 28.6% Camberwell which relocated to Chapel Street, South FURNITURE & HOMEWARE 5.8% PERSONAL RETAILING 26.4% Yarra. The continual rise in vacancy over BANKING 3.9% Glenferrie Rd, OTHER 4.8% 10.7% 6.7% the past five years has been influenced by VACANT 8.0% Hawthorn increasing rental levels as well as Source: Knight Frank Research Glenferrie Rd, 3.9% 5.1% Malvern FIGURE 1 Puckle St, 10.8% 8.1% July 2017 Retail Strips Tenancy Mix Moonee Ponds % of number of shops by street

Bridge Rd, 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 16.7% 21.4% Richmond High St Church St Clarendon St, 6.3% 5.1% Burke Rd South Melbourne Glenferrie Rd Hawthorn Chapel St, Glenferrie Rd Malvern 13.5% 12.4% South Yarra Puckle St Bridge Rd Toorak Rd, Clarendon St 2.6% 6.0% South Yarra Chapel St Toorak Rd Acland St, 7.5% 11.2% Acland St St Kilda CLOTHING, FOOTWEAR & SOFT GOODS FOOD RETAILING FURNITURE & HOMEWARE PERSONAL RETAILING BANKING OTHER Melbourne Total 8.4% 8.0% VACANT

Source: Knight Frank Research Source: Knight Frank Research

2 MELBOURNE RETAIL STRIPS JULY 2017 RESEARCH

Nando’s, and Gami Chicken & Puckle Street, Moonee Ponds; Clarendon Beer, vacating their premises. Tenant Street, South Melbourne; Toorak Road, commitments over the past 12 months South Yarra; and Acland Street, St Kilda. “Vacancy along Bridge along Acland Street, St Kilda were largely Road, Richmond from personal retailing, namely hair and Incoming tenants across Melbourne’s increased for the beauty salons, and clothing retailing, two prime retail strips were led by personal of which were pop-up shops. retailing and furniture & homeware second consecutive retailing, increasing by 1.3% and 0.2% year, reaching 21.4%, Vacancy along High Street, Armadale respectively in the 12 months to July decreased for the third consecutive year, 2017. The increase in demand for an all-time high.” falling from 6.4% to 3.9%. In the 12 furniture and homeware goods stems months to July 2017, 15 clothing retailers from the rise in residential development. committed to retail space along the strip Recently, Sheridan opened a store the previous year. Local private investors including luxury brands Zimmermann and across two levels at 781-783 Burke were the most active buyers, with sales Bianca Spencer, and fitness wear brands Road, Camberwell as part of a new totalling $49.1 million, accounting for Pilot Athletic and Jaggad. concept of engaging with customers via 63% of all sales by value. in-store design consultants and large

Puckle Street, Moonee Ponds saw discussion areas. In the past, incoming By retail strip, Church Street, Brighton vacancy fall to 8.1% as at July 2017. The tenants were led by clothing retailing accounted for the bulk of sales with $40.4 fall in vacancy was underpinned by followed by furniture & homeware million transacted, accounting for 52% of tenant commitments from a variety of retailing. total sales volumes. Transaction volumes retailers including Discount Variety Store were supported by the sale of 104 (discount variety shop), The Little Big Investment Activity Church Street, Brighton, which was Company (party supplies shop) and acquired by a local private investor for Interflora (florist). The bulk of tenant Retail sales in excess of $1 million across $32 million, reflecting a core market yield commitments, however, were from food Melbourne’s prime retail strips, in the of 3.77%. retailing and personal retailing. 12 months to July 2017, totalled $78 million across 17 properties. This was up The total tenant churn across from $66.6 million across 19 properties in Melbourne’s prime retail strips in the 12 months to July 2017 was 6.9%, down TABLE 2 from 13.0%. Burke Road, Camberwell Recent Sales Activity Melbourne Retail Suburban Strips and High Street, Armadale recorded the highest churn mostly due to tenants Price Core Market GLAR $/m2 of Address 2 Date repositioning along the retail strip, ($ m) Yield (%) (m ) GLAR seeking competitive rents and better locations. Within the past year, Ziera and 684 Burke Rd, Camberwell 2.40 3.90* 191 12,565 Jun-17 Laurent Patisserie relocated along Burke 479 Chapel St, South Yarra 2.72 U/D 104 26,150 Jun-17 Road while Viktoria & Woods and Toni & 108 Glenferrie Rd, Malvern 3.31 3.50* 239 13,849 Apr-17 Guy relocated along High Street. 29 Toorak Rd, South Yarra 2.56 3.50* 230 11,304 Dec-16 Tenancy Mix 730 Glenferrie Rd, Hawthorn 3.21 2.70 211 15,213 Aug-16 ^ The tenancy mix across Melbourne’s 104 Church St, Brighton 32.08 3.77 3,307 9,701 Jul-16 prime retail strips remains dominated by *initial yield ^Woolworths U/D undisclosed food retailing, accounting for 28.6% of TABLE 3 the total number of shops. This was Recent Leasing Activity Melbourne Retail Suburban Strips followed by personal retailing at 26.3% and clothing, footwear & soft goods Net Rent GLAR Term Address Tenant Date retailing at 22.5%. $/m2 (m²) (yr)

555A Chapel St, South Yarra Mister Zimi 1,198 121 4 May-17 The retail strips with the highest proportion of food retailers included High 18 Church St, Brighton Wittner Shoes 809 127 6 Mar-17 Street, Armadale; Church Street, 1005 High St, Armadale Duzen 650 100 U/D Mar-17 Brighton; Bridge Road, Richmond; and 638 Burke Rd, Camberwell Paper Republic 828 145 3 Nov-16 Chapel Street, South Yarra. Clothing, 383 Chapel St, South Yarra Abacus 833 326 U/D Feb-17 footwear & soft goods retailers was the most prominent along Glenferrie Road, 36 Toorak Rd, South Yarra Mono Lab 700 150 3 Aug-16 Hawthorn; Glenferrie Road, Malvern; U/D undisclosed Source: Knight Frank Research

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Outlook incorporating 151 apartments and RESEARCH 1,624m2 of retail space across eight Jane Wong The Victorian economy is forecast to tenancies within two multi-level buildings Research Analyst, Victoria continue to strengthen over the medium has received planning approval. +61 3 9604 4650 term, with State Final Demand growing at [email protected] Construction is anticipated to commence an average pace of 2.9% between 2017 in the second half of 2017, with expected Kimberley Paterson and 2021. Retail turnover growth is completion in 2019. Associate Director, Victoria forecast to increase at an average of 3.2% +61 3 9604 4608 during the same period as a result of [email protected] Numerous retailers along Melbourne’s above average population growth. prime retail strips have gone into VICTORIA Nevertheless, despite the official cash rate administration over the past 12 months, James Templeton remaining unchanged at 1.5% since Managing Director, Victoria including Topshop, Marcs and Pressed August 2016, high levels of household +61 3 9604 4724 Juices, highlighting the increasingly debt combined with limited wage growth [email protected] competitive Australian retail market. In have the potential to negatively impact the addition, the upcoming arrival of Amazon RETAIL retail sector going forward. will further add competition. Paul Pellegrino Senior Sales and Leasing Executive -

The growing residential population will Metropolitan Retail Melbourne’s prime retail strips will continue to boost retail trade, particularly +61 3 8545 8615 continue to face competition from [email protected] food retailing, with a number of residential emerging retail locations, such as and mixed-use developments earmarked Gary Loo Brunswick Street, Fitzroy; Smith Street, along Melbourne’s prime retail strips. Director, Retail Leasing Collingwood; and High Street, Northcote, +61 3 9604 4743 Bridge Road, Richmond will see the which currently have vacancy rates [email protected] completion of Claudia Apartments at 123- averaging at 4.0%. These emerging retail 125 Bridge Road and Dux Richmond Hill CAPITAL MARKETS locations with lower rental costs are at 153-177 Bridge Road, providing Danny Clark recognised for their unique food retailing, approximately 195 apartments by 2018. At Head of Commercial Sales, Victoria vintage and boutique clothing shops as +61 3 9604 4686 17-23 Puckle Street & 6-14 Young Street, well as alternative feel compared with [email protected] Moonee Ponds, a mixed-use development Melbourne’s prime retail strips. Tim Grant Director in Charge - Eastern Office Methodology: Glen Waverley This analysis collects and tabulates data detailing vacancies within retail properties having +61 3 8545 8611 street frontage across prime precincts of Melbourne’s suburban retail strips: Burke Road in [email protected] Camberwell, Bridge Road in Richmond, Puckle Street in Moonee Ponds, Chapel Street in South Yarra, Glenferrie Road in Hawthorn & Malvern, High Street in Armadale, Toorak Road in ASSET MANAGEMENT SERVICES South Yarra, Acland Street in St. Kilda, Clarendon Street in South Melbourne and Church Trenham Weatherhead Street in Brighton. Director, Asset Management +61 3 9604 4677 Knight Frank Research provides strategic advice, consultancy services and forecasting [email protected] to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the VALUATIONS need for expert independent advice customised to their specific needs. Joe Perillo Joint Managing Director, Valuations RECENT MARKET-LEADING RESEARCH PUBLICATIONS +61 3 8548 6817 [email protected]

Aaron Kelly Associate Director +61 3 8548 6809 [email protected]

Sydney CBD Retail Melbourne Industrial Melbourne CBD Active Capital Market Brief Vacancy Analysis Retail Market Brief 2017 July 2017 July 2017 June 2017

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