Retail ranks close behind office markets when it comes to being buffeted by the current economy. Yet parts of the retail sector are rallying, latest ABS figures showing foot traffic up in almost every state and no shortage of customers hankering for luxury brands. And when it comes to bricks and mortar, prime retail strips – or high street shopping areas – are emerging as an investor favourite as the shift toward buying local continues.
Sales of commercial assets on Sydney and Melbourne’s prime shopping streets are booming. In Melbourne, Mark Talbot, director of agency for commercial property firm Fitzroys says the retail sub-sector is currently offering “excellent investment credentials.”
“The strips are experiencing a real period of renewal at the moment,” Mr Talbot says. “Vacancies are at long-term lows as Melburnians spend more time than ever at their local villages… while developments on and around the strips are underpinning future trade prospects.”
Strong sales
In the past three months alone, Fitzroys sold more than $16 million of prime shopping strip retail assets on Toorak Road including the prominent double-storey property at 109-111 Toorak Road (on the corner of Murphy Street) for $6.23 million, on a 3.2% passing yield. The asset was home to five shops and a first-floor office tenanted by a residential real estate agency.
Another notable transaction, regarded a benchmark sale, was the open plan retail premises at 416 Toorak Road, Toorak late last year. Featuring a full height glass shopfront and rear storage plus garage car parking on title, the property transacted at a low 1.8% net yield which Fitzroys reports is likely the lowest paid for a fully leased, pure investment play in a Melbourne shopping strip during 2023.
Other areas also enjoying an uplift according to Fitzroys latest Walk the Strip report include Richmond, Brighton, Monee Ponds and Camberwell. The suburbs are among those where retail strips are hitting “all-time lowest” average vacancy rates of 6.2%. Some are the lowest ever recorded in eight years, including Church Street, Brighton, at 1.1 per cent and Hampton Street, Hampton, at 1.8 per cent, while the total average is down from around 10.3 per cent during the height of 2021’s lockdowns and social restrictions. Working from home and plans for mixed use lifestyle developments near several such retail strips are principal drivers of the low vacancy rates.
Chemists Warehouse executives have also been active, snapping up a row of three shops in Church Street Brighton for close to $10 million, reportedly as an investment, after purchasing properties in Fitzroy and Glen Waverley retail strips over the past 18 months. More than 80 offers were received for the Brighton property sold by Gross Waddell ICR.
Rare opportunities
Tightly held retail strips in Sydney’s eastern suburbs have also seen a flurry of activity. Among notable sales were three by Knight Frank which all generated significant demand and strong results. A two-storey freehold at 133 Belmore Road Randwick, location of the suburb’s iconic Choy’s restaurant for 45 years, was sold by the owner-occupier to an offshore investor for $2.35 million; and in Paddington, at the heart of the suburb’s renowned Five Ways, a two-storey property tenanted by Sonder Café was sold by its owner of eight years to a local investor for $3.75 million in an off-market deal. In the heart of Coogee’s shopping village, a local family sold a two-storey retail asset at 218 Coogee Bay Road to a local investor for $3.1 million.
The sales are clear evidence of rising demand for premium strip retail freehold says Knight Frank’s James Masselos, adding “traditionally, many of these assets are very tightly held, and won’t change hands for decades. When they do come up for sale, or there is an opportunity to purchase, buyers consider the rarity of the opportunity as well as the quality of the investment.”
As for the long term, Colliers CEO Malcom Tyson forecasts a bright outlook for retail assets simply due to demand outpacing supply. “Existing retail assets will reap the benefits of an undersupply of 2.2 million square metres of floorspace nationally by 2032, potentially absorbing an additional $20.5 billion in sales by today’s market metrics,” Mr Tyson says.