Melbourne’s retail sector is struggling through its toughest period since the 1960s, according to the December Herron Todd White property market report, with retail landlords letting outside the main retail strips the most affected.
According to October ABS statistics, the national annual growth rate in retail sales is 2.8%, equating to the worst growth since 1962. Retail sales rose 0.6% in Victoria on a seasonally adjusted basis in October, having registered no growth in September, increases of just 0.3% and 0.5% in August and July and decreases of 0.3% and 1% in June and May.
Under these tough trading conditions, HTW reports that the Victorian Small Business Commissioner has witnessed a “substantial increase in rental dispute resolution enquiries in 2011” as an increasing number of tenants found it difficult to meet their lease obligations.
“It appears that retailers who are positioned outside the main retail strips with limited exposure are most affected when there is a downturn in retail trade levels,” says HTW.
The report warns that should consumer spending continue to weaken rents might fall, which could lead to a softening in capital values into 2012.
Among the retail strips outside Melbourne CBD hardest hit has been Bridge Road, Richmond, where the vacancy rate has risen to 10.6% by mid-2011.
“[Bridge Road] has been traditionally been known for its discount stores and now has to compete with the likes of the Direct Factory Outlets and other large-scale suburban shopping centres,” says HTW.
According to the report, the exception has been well-placed retailers located in within prominent strips within Melbourne.
“Swanston Street in the Melbourne CBD, Glenferrie Road, Hawthorn and Chapel Street, South Yarra are good examples of resilient retail destinations in 2011.”
“Despite the tough retail environment, real estate agents have reported strong transactional activity, and Melbourne’s appetite for retail property is expected to remain strong in the short term,” HTW says.
“Prime Melbourne retail is very much still in high demand whilst secondary retail is perhaps harder to lease/sell.”
Large retail sales for 2011 include a two-level, freehold retail building at 269 Swanston Street, which sold in March 2011 for $6.5 million, reflecting an investment yield of 3.12% and a 20-square-metre lot on Swanston Street that sold for $2.11 million, reflected a rate per square metre of $105,500.
Outside of the CBD, leasing activity has picked up on Chapel Street, with Mexican food retailer Salsa’s taking up space in the Jam Factory. The deal was negotiated by Max Cookes and Zelman Ainsworth from CBRE retail services.
According to Cookes, the major rejuvenation of the centre has been a key attraction for Salsa’s.
Salsa joins major international and national retailers that have secured a presence within the centre including fashion heavyweight Topshop, which secured a 1,600-square-metre space within the Jam Factory for its Australian launch and is due to open this week.
Other retailers to join the centre include Lindt, Groove Train, Steve Madden, Target Urban and Nandos.
One of the previous anchor tenants of the Jam Factory was Borders Books, whose vacated space has been taken up by Topshop.
In its report, HTW said the collapse of Borders, fellow book chain Angus and Robertson and fashion chain Colorado in 2011 might have been the result of the inability of tenants to maintain current rental levels when faced with diminishing turnover.
Photo by Anna Armstrong