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The disparity between some of Melbourne’s local neighbourhood retail shopping centres and the appetite of local investors continues to bewilder some.

Whilst retailers in general terms continue to complain about the lack of trade and the ever increasing costs of day to day business whether it be the rent or the cost of labour via penalty rates…it seems that unless you are operating a café…you are struggling.

Whilst a few key retail strip centres are performing well, it would seem that vacancy rates continue to plague others with little, if any, prospect for any short or medium term improvement.

On the other hand, we have investors that appear oblivious to the retail trading market with unprecedented yields becoming the norm. But the question still stands…for how much longer?

We can all accept the scarcity for such product creates an underlying desire to own a piece of the local strip, after all, how many Church Street, Brightons do we have? With the majority of retail shopping strip centres being ‘tightly held’, competition arises with records results being recorded almost on a weekly basis.

Recent results include 15 Centreway, Mount Waverley having sold for $2,140,000 on a sharp yield of 3.4% whilst 11 Eaton Mall, Oakleigh sold for $2,070,000 on a yield of 2.8%. Such results are a reflection of the strength of our love for the local retail strip centre. Many more examples can be sighted over the last six to twelve month period to illustrate this point.

However, one needs to ask…what has happened to the likes of the beloved Chapel Street, South Yarra or Bridge Road, Richmond. These two retail strips continue to be hampered with vacancy rates being well above averages with little likelihood of any changes in the short term on the horizon. Could such vacancy rates creep into other local strip centres?

It would seem that two markets currently prevail; Fashion retailing in the CBD and shopping centres and the café culture within our neighbourhood strip centres. The CBD has been witness to a monumental arrival of foreign fashion houses over the last years. But it’s the latter trend that raises the eyebrows of many with vacancy rates having spiked in the past 12 months.

Retail Strip Vacancy Factors Jul-16 Jul-17
High Street, Armadale 6.40% 3.90%
Church Street, Brighton 4.00% 0.60%
Burke Road, Camberwell 6.70% 5.60%
Glenferrie Road, Malvern 3.90% 5.10%
Glenferrie Road, Hawthorn 10.70% 6.70%
Puckle Street, Moonee Ponds 10.80% 8.10%
Bridge Road, Richmond 16.70% 21.40%
Clarendon Street, South Melbourne 6.30% 5.10%
Chapel Street, South Yarra 13.50% 12.40%
Toorak Road, South Yarra 2.60% 6.00%
Acland Street, South Yarra 7.50% 11.20%
Source: Knight Frank

The constant theme evident throughout Metropolitan Melbourne is the increase in the number of cafes, take away food and restaurants at the cost of decreasing fashion, footwear and household goods.

Increasing vacancy rates with no improvement in sight can only mean one thing…downward pressure on rents. But can such downward pressure further compress yields? After all, how low can they go?

There is no doubt that the retail sector is facing challenges including stagnant growth in spending, a change in buyer spending patterns, the impact of digitisation and internet shopping as well as the arrival of the white elephant…Amazon. The US-based on line retail giant is one step closer to taking a piece of the pie announcing that it would open a 24,000 sqm warehouse in Dandenong South. For reference, that’s three times that size of an average Bunnings Store.

Unfortunately, if its one sector that is likely to face headwinds in the not too distant future…it’s the retail sector.

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