On the ground

 

Melbourne’s retail landscape has changed dramatically in recent times, with redevelopments at major shopping complexes, department stores and retail chains. Nora Farren hits the rewind button and looks back on a decade in Melbourne retail.

Melbourne’s unique combination of laneways, arcades, shopping strips, and shopping centres makes it one of the world’s premier shopping destinations. From major department stores to historic arcades, innovative shopping centres to rediscovered laneways, international designers to independent boutiques, Melbourne’s retail offer is the most diverse in the country.

Over the last decade, Melbourne has changed dramatically and so too has the retail environment. According the Property Council of Australia there are approx 240 shopping centres in Victoria, comprising over 3.8 million square metres of retail space.

In Melbourne alone there are over 175 shopping centres containing some 3.1 million square metres.  Fashion is the dominant retail category in the CBD, along suburban retail strips and in shopping centres.

It is estimated that approx one quarter of all retail outlets in the Melbourne CBD are dedicated to fashion. The figure is even higher along the prominent suburban strip locations, at around 40 per cent.  While the amount of retail space in Melbourne has increased markedly in recent years, the proportion of fashion retailers has remained relatively stable.    

Local, interstate and international retailers have been drawn to Melbourne on the recent strength of its retail trade figures.  Spending in Victoria has been running above the national average, and new development opportunities have been emerging on the back of strong population growth. 

The increase in retail sales volumes has been much stronger in Victoria than the rest of the country, with trend growth during the December quarter 2010 running at 1 per cent, while other major states across Australia saw negative growth.

Retailing in the Melbourne CBD continues to gain momentum, driven by the increasing city population as well as growing workforce and steady visitor numbers.

Over the past five years Melbourne has become home to some of the world’s key international retailers, while at the same time attracting a diverse array of Australia’s leading local retailers and designers.

New shopping precincts have emerged and significant retail developments including QV, Melbourne Central and GPO have added depth and variety to the mix over the past decade. 

More recent additions such as Waterfront City, 206 Bourke Street (formerly Village City Centre), DFO South Wharf and the Crown Metropol have resulted in significant amounts of new retail space coming on-line in the last five years, and contributed further to the popularity of Melbourne as a shopping destination. 

Over the past five years retail space in the City of Melbourne has grown by over 225,000 square metres, making up the bulk of retail development occurring across the state. 

While there has been refurbishments and additions made to some of the larger suburban shopping centres, the bulk of new retail spaces added has been in inner city areas.  Retail vacancy rates within the CBD and prime strips remain at very low levels and any vacancies that emerge are generally taken up quickly.

Over the next five years this market could potentially see a further 79,000 square metres of retail space added.  The largest of which is the retail component at the former CUB site in Carlton, which is expected to be approx 35,000 square metres.

Melbourne is famous for its laneway culture, something that Sydney has tried to encourage, with limited success.  Not only are the retail establishments in laneways increasing, the number of laneways reclaimed has risen dramatically.

There is a trend towards vertical retailing in laneways and arcades, with both above and below ground retail increasing.  The number of establishments, floor space and employment has all grown substantially.

According to the City of Melbourne, the top five lanes in terms of growth have been Hardware Lane, Degraves Street, Centre Place, Block Place and Red Cape Lane in QV.  With Howey Place, Manchester Lane, Scott Alley and Cathedral Arcade leading the upsurge in retailing, and women’s retailing in particular.

The Melbourne CBD is home to Australia’s largest department store redevelopments, with both Myer and David Jones recently undertaking large upgrades of their stores in the Bourke Street Mall.  This led other retailers to also create effective flagship stores in-line with the Bourke Street redevelopment, and further enhanced this location as a fashion destination.

The Melbourne market has seen a steady increase in retail rents over the past five years, as international retailers and a growing influx of Sydney-based retailers look to expand into the Melbourne market.

While local tenant demand has been steady, the major trend continues to be the emergence of global retailers seeking space in the Melbourne market, particularly in the inner city.  Demand for retail space in the Melbourne CBD has grown in-line with the strength of the office leasing market, as full office buildings mean more workers in the CBD. 

Super prime rents in the Melbourne CBD can reach as high as $6,500 a square metre for shops at the ‘Paris end’ of Collins Street.  International retailers continue to show strong interest in locations along Collins Street, which has resulted in rents on this strip averaging $3,500 per square metre.  Flinders Lane and Little Collins Street remain popular with emerging brands and more fashion forward retailers. 

The range of rents within and between precincts in the Melbourne CBD highlights the sensitivity of demand for retail premises to location within a precinct.  This reflects the level of exposure to potential customers, proximity to key retail anchors, level of amenity and suitability for different retail uses.

Rents for basement and upper level shops in the Melbourne CBD  is substantially less expensive than other inner suburban strip centres, with value being determined by demand for non-retail use alternatives such as offices.

As far as retailers are concerned, Chapel Street is still Melbourne’s most sought after strip retail location.  In recent times Chapel Street has consolidated its position as one of the most dominant retail destination in Victoria. Rents along Chapel Street range between $950 to $1,500 per square metre, the highest of any strip retail location in Australia. 

The stand-out retail performer over the past 12 months has been the luxury sector, with the likes of Jimmy Choo, TAG Heur, Prada, Tiffany & Co and Miu Miu all opening stores in Melbourne during 2010.  Collins Street is still the major luxury retail shopping destination in Melbourne, housing such brands as Armani, Bulgari, Chanel, Hermes, Louis Vuitton, Prada, Tiffany & Co, Paspaley, and Georg Jensen.  

Chadstone Shopping Centre has Australia’s largest collection of luxury brands under one roof, and was the first shopping centre in Australia to have a dedicated luxury precinct. 

Opened in late 2009, Gucci, Jimmy Choo, Chanel, Louis Vuitton and Tiffany & Co are among the 12 brands with shops in the luxury precinct, which marked the final stage of a $280m redevelopment of Chadstone, and made it the largest shopping centre in the southern hemisphere. 

Luxury precincts in shopping centres are common overseas, but the Chadstone development was the first of its scale in a mall in Australia, where luxury brands traditionally have resisted opening stores. 

Luring the luxury brands beyond their traditional stronghold of Collins Street in Melbourne involved giving them a precinct in which they could cluster together with shop fit-outs to the standard they require.  While Westfield Bondi Junction in Sydney and Queen’s Plaza shopping centre in Brisbane have each recently welcomed a handful of luxury labels, the Chadstone initiative is the largest of its kind.

The suburbs of Melbourne house some of the largest and most successful shopping centres in Australia.  These centres dominate the retail landscape in Australia, in terms of size and turnover, and include Knox City Shopping Centre, Westfield Doncaster, Westfield Fountain Gate and Highpoint Shopping Centre.

The largest of which is Chadstone Shopping Centre, at over 165,000 square metres.  Chadstone is known as the shopping hub of Victoria, and not just for its concentration of luxury and upmarket brands. 

It has proven to be the most successful shopping centre in Australia, with turnover in excess of 1 billion per annum.  American retailer Gap chose to open its first Australian store in Melbourne, at Chadstone.  The store occupies 1,200 square metres over two levels, which compares with an average size of 350 square metres for Australian retail tenancies.   

Interest from international retailers has put Melbourne well-and-truly on the global retail radar.  Groups such as Gap, Abercrombie & Fitch and Zara have been leading the recent international push into Melbourne. 

Global brands will continue to play an important role in ensuring Melbourne remains the shopping capital of Australia, but of greater importance will be Melbourne’s ability to offer the ever demanding consumer a unique retail offer.

As the Melbourne market continues to mature, more and more pressure is being placed on retail landlords to house those international brands, as they continue to dominate the market place.  Even during the global financial crisis, international retailers still saw Australia, and in particular Melbourne, as a safe and secure destination to invest in. 

There are currently understood to be a number of global retailers in the marketplace, searching for suitable locations to open flagship stores in Melbourne. Meaning 2011 should be another year of retail firsts for the Melbourne market.


Nora Farren is a director of research at Colliers International.