Melbourne CBD retail vacancies down amid post-pandemic transformation

17 April 2024

Retail vacancies across the Melbourne CBD’s key shopping and hospitality precincts nearly halved over the past 12 months as the city moved further through its post- pandemic transformation – and there is good cause for optimism ahead as construction sites in key pockets are set to reach completion and become new hives of activity.

According to Fitzroys’ latest Walk the CBD report, retail vacancies in the CBD came down to 8.7% across its key retail precincts, from 15.5% a year earlier, with the take-up of space by hospitality, food and beverage and entertainment operators the key driving force. The trend has continued well into 2024, with Fitzroys striking multiple new leasing deals.

“Retail has admirably weathered this critical period for Melbourne,” said Fitzroys’ James Lockwood.

“Retail has dealt with the pandemic and its lockdowns, the resulting shifts in office worker routines and changes to CBD shopping, dining and lifestyle habits, as well as key pockets of the city effectively being shut down long-term for construction projects,” he said.

“As the city settles into a new rhythm of live, work and play, we expect a bright period ahead for Melbourne CBD retail.”

The proportion of hospitality and food and beverage tenants in the CBD jumped from 34.1% to 40.9% of all surveyed spaces. Service retail lifted modestly to 16.7% and specialty receded slightly to 31.8%, while space undergoing development was steady.

Fitzroys’ 2024 Walk the CBD report also found:
• Swanston Street was the biggest improver in terms of vacancies, with rents bottoming out and tenants are taking up space around the future Metro Tunnel station entrances, anticipating key pockets of the city reawakening in 2025 on completion of the of long-term construction efforts. Vacancy came down from 18.7% to 3.4%.
• Paris end of Collins Street retained the lowest vacancy rate, of 2.6%, as the city’s east continues to prove its pulling power.
• International students have changed the face of Melbourne CBD retail in the city’s post-pandemic recovery.

Lockwood said, “There’s been a lot of scaffolding and a lot of construction going on.”

He said the Metro Station works along Swanston Street had for several years now taken chunks out from Federation Square up to Collins Street, and further north around the State Library.

“The city’s really looking forward to the Metro Tunnel works being completed. That’s taken some key pockets of the city out of action for a long time, but these major construction sites are set to become hives of activity nearly overnight that retailers and hospitality operators will really be able to thrive off,” Lockwood said.

The Metro Tunnel project is due to be completed in 2025, one year ahead of schedule.

Bourke Street Mall, in the heart of the CBD, has had a central part of its offering shut off for the overhaul of the former David Jones menswear building. It saw vacancies fall from 13.8% to just 4.0%. Melbourne City Council data shows pedestrian traffic has been growing month-on-month in 2024 in the Mall and is higher than in the early part of 2023.

Lockwood said, “The ongoing return of international students has brought a real buzz to the CBD, and there’s been ongoing momentum in the food and beverage sector, while landlords have been more willing to meet the market on rents. Together with the anticipation of the completion of the Metro Tunnel, that’s all come through in the vacancy data.”

Elizabeth Street vacancies nearly halved to 12.2%, while Flinders Lane – arguably the CBD’s most in-demand hospitality precinct – came down by more than half to 6.0%, and Chinatown to 7.4%. Flinders Street edged upwards to 5.7%.

Vacancies came down in the Retail Core from 17.1% to 11.1% as food and beverage jumped by nearly 8% to 44.4% of shops.

The latest Melbourne City Council pedestrian data showed the first two months of 2024 recorded the highest CBD foot traffic levels since 2015. Saturday is the busiest day of the week, followed by Friday – as Melburnians and tourists come into the city for hospitality, lifestyle, shopping and entertainment. Pedestrian activity near Town Hall, at the corner of Swanston Street and Collins Street, is 3% higher than was last year – which was up 22% on 2022.

According to the Council, the City of Melbourne has about 21,000 retail workers who generate about $1.8 billion in output.

Hospitality, food and beverage, and entertainment the driving force

“The Melbourne CBD continues to undergo a post-pandemic period of renewal,” Lockwood said.

“The momentum in the hospitality and food and beverage sector has continued on from the initial stages of the pandemic recovery, which saw a record-breaking number of hospitality and entertainment venues open up across the City of Melbourne.”

“The recession of the 1990s was followed by innovation across the CBD, and we’re now seeing a similar pattern of new hospitality venues opening, laneways being activated and inner-city living taking off again.”

Lockwood and Fitzroys’ Franklin Gikas have just struck several key deals.

Among the headlining deals is the lease of 758sqm across the ground and first floors of 360 Bourke Street to Unko Museum – also known as the “Cute Poop Museum” – bringing the hugely successful Kawaii Poop Experience from Japan. The interactive exhibit is adorned with adorable and colourful Kawaii décor, and installations, displays, and immersive attractions revolve around the theme of “adorable poop”. It arrives in Melbourne after a successful tour through Japan, visiting cities including Tokyo, Hiroshima and Shizuoka.

At 136 Exhibition Street, a joint venture between Red Rock Leisure Group (Cookie, The Toff) and renowned chef Michael Lambie (ex-Lucy Liu, The Smith) has taken 488sqm with the concept for a contemporary Asian fusion restaurant and bar.

“This part of Exhibition Street has seen a huge transformation in the past 18 months and has effectively connected several hospitality precincts,” Lockwood said.

“The introduction of this new venture, as well as Morris House, Farmer’s Daughters, and Antara 128 has connected the Flinders Lane precinct, around Chin Chin and Garden State Hotel, through to Bourke Street, near Grossi Florentino, Bottega, Pellegrini’s, Fancy Hanks, and Good Heavens Rooftop, and Little Bourke Street, around Longrain, Bodega Underground and Ho Chi Mama.”

At GPT’s transformed Queen & Collins building, Lockwood and Gikas have struck two new deals. Remo Nicolini’s A25 Pizzeria will open up its new “Centro” CBD store in a five-year deal over 118sqm, and 142sqm has been leased to the team behind Franklin Street’s Ichigo for a new French/Japanese fusion concept restaurant.

“These are great votes of confidence in the CBD from quality operators who have witnessed first-hand the city’s post-pandemic recovery and want to be a part of it going forward,” Lockwood said.

“These hospitality deals were struck with secure long-term commitments. Operators have seen the shift in balance of the CBD towards a lifestyle playground and are confident in its viability.”

They follow a string of hospitality deals struck by Fitzroys towards the end of the reporting period. Headlining those was the lease of the three-level former Shakespeare Hotel building at 167 Exhibition Street to an all-star Filipino hospitality crew with that will set up “Askal”, a contemporary restaurant and bar concept serving exciting Filipino and South East Asian-inspired food alongside bespoke cocktails and a diverse wine list. The crew’s collective experience extends to Rockpool kitchens, Chris Lucas’ stable of restaurants, and hatted venues.

International students changing the face of Melbourne CBD retail

Lockwood said, “The ongoing return of international students over the past 12 months – heavily driven by Beijing’s snap edict at the start of 2023 for students to attend overseas courses face-to-face – has continued to reshape the face of Melbourne CBD retail.”

There were nearly 50,000 students from China studying in Victoria in 2023, accounting for around 21% of all international students enrolled in the state.

“The impact of international students has been seen in what is effectively the expansion of Chinatown out onto Swanston Street and Elizabeth Street in particular, and running northwards, around Melbourne University and RMIT University. As well as dumpling houses, hotpot, ramen bars and Korean BBQ that also means more modern food and grab-and-go offerings such as bubble teas.”

Spending by international students accounted for more than half of Australia’s economic growth in 2023, according to NAB. GDP growth was 1.5% in annual terms over the year, and analysis of national accounts figures by NAB economists found education exports – spending by international students – equalled 0.8 percentage points of annual GDP growth.

High-end pulling power

The Paris end of the city continues to attract a long list of names clambering to join the long roll-call of global luxury retailers headlined by Louis Vuitton, Gucci, Versace and Cartier.

That demand to be in the Paris end and rarity of opportunities has seen the luxury offering continue to creep outwards into Russell Street, Exhibition Street, and Flinders Lane.

Around the Chanel building at the corner of Russell Street and Flinders Lane, momentum is gathering. Spanish luxury brand Loewe and high-end jewellery retailer.

FRED – both owned by LVMH – moved into Flinders Lane and Russell Street-fronting shopfronts respectively within Pembroke’s T&G building at 161 Collins Street, home to Gucci, Versace and Bottega Veneta. On the south east corner of Russell Street and Flinders Lane, LVMH last year bought the 145-149 Flinders Lane building for $39 million, where it is expected to set up a new multi-level Christian Dior flagship.

“It proves the pulling power of the Chanel name,” Lockwood said.

Chanel Mousse Investments – the owner of Chanel – has just shown its faith in the location by buying its own 10-year-old store for $75 million.

Tenants such as Rolex, Sarah Sebastian and Dion Lee have also been pulled along Exhibition Street due to the premium hotels in the city’s East end.