Shopping strips typically possess volatile vacancy rates. Historically, that’s due to a variety of reasons, the chief one amongst them being that rent in areas with proven catchment is often quite high. In 2018, the vacancy rate across Melbourne’s primary shopping strips peaked at 8.6%, the highest it had been since 2007.
As we discussed in July of last year, those figures seemed to peak in 2020, even before the COVID-19 pandemic had hit Melbourne. For example, according to the 2021 Walk The Strip study from Fitzroys, the Camberwell Junction had its vacancy rate balloon from 5.41% in 2019, up to 11.29% in February 2020. Glenferrie Road in Hawthorn experienced a similar shift, moving from a vacancy rate of 7.69% in 2019 to a 12.63% rate in 2020. There are exceptions, like Brighton’s Church Street, where vacancy has remained relatively stagnant even in the midst of the shutdowns, but the trends across the board seemed to suggest that businesses were shrinking away from the main shopping strips.
Few retail environments have captured that shift in vacancy as acutely as South Yarra’s Chapel Street. With a 15.63% vacancy rate in 2019, Chapel Street found itself home to a bevy of additional empty shopfronts in 2020 as that rate inflated to 20.38%. The rise in vacancies coincided with a major decline in specialty retail for the area; specialty retail accounted for 54.69% of the strip’s tenancies in 2019, but reduced down to 44.08% in 2020.
Fortunately, the dour state of the commercial rental market, particularly on Chapel Street, has been turning around in the past year.
Tenancy Mix Statistics for Chapel Street - Fitzroys' Walk The Strip 2021
“South Yarra still has the fundamentals of strong, established catchment in an affluent area, an ongoing development pipeline and now, affordable rentals and strong incentive levels - this is very attractive for tenants.”
This was the messaging from Fitzroys’ Associate Director of Leasing, James Lockwood, when he was discussing the return to form for Chapel Street’s retail ventures last year. These comments came in the wake of Fitzroys discovering that the 20.38% vacancy rate in 2020 had reduced back down to 18.69% by August of 2021. That’s still higher than it was in 2019, but it’s a remarkable decrease from the worst days of the pandemic.
The confidence that this rebound has inspired was reflected in Fitzroys’ latest deal, brokered by agents Chris Kombi and Lewis Waddell for 517 & 517A Chapel Street. After inducing 80 buyer enquiries, this 311 sqm, two-storey building with a land area of 212 sqm sold to a local investor for $3 million. That value resulted in a sharp blended yield of 3.9%; sensational value for a sensational property.
The 212 sqm Activity Centre-Zoned has long been leased to established tenants Eternal Bride and Katuk Bar. Eternal Bride, on the ground floor, is currently on a 3 x 3 x 3 year lease, and the ever-popular Katuk Bar, established in 2007, is secured by a 10-year lease, giving the property certainty in uncertain times.
This sale comes soon after Fitzroys has successfully promoted properties on both Glenferrie Road and Burke Road. In April, 193-195 Glenferrie Road and 86-92 Union Street were sold for $7.15 million, which rendered a tight blended yield of 4.1%. In March, the NAB outlet at 566 Burke Road in Camberwell sold under the hammer for $6.66 million. Most significantly, in April, 587-593 Chapel Street, South Yarra sold for $5.825 million, for an extremely sharp passing yield of 2.9%.
If 517 & 517A Chapel Street is an indication of anything, it’s that this strip is exceeding expectations and diversifying. Less than half a decade ago, Chapel Street was, percentage-wise, inundated by specialist retail, with very few service stores. Now, the numbers are starting to balance more evenly. With major projects like the $1.4 billion redevelopment of the Jam Factory cinema, retail, and hospitality complex achieving approval, Chapel Street seems set to continue providing a varied entertainment experience for all ages and demographics.
