Are smaller sized retail tenancies here to stay?

With fitout costs for retail tenancies continuing to trend upwards, demand for smaller sized tenancies in Melbourne’s growth areas are heating up in response.

As a highly active developer of Neighbourhood Activity Centres (NACs) throughout Melbourne’s suburban areas, we are seeing several levers driving an increase in smaller retail tenancies, particularly in the 40 to 75 square metre range.

Oreana currently has planning permits approved for six new NACs across Tarneit, Clyde, Mickleham, Werribee, Armstrong Creek, and Epping. Ranging in size, the smaller centres will feature independent supermarkets and 10-15 specialty shops, while the larger centres will be anchored by a full-line major supermarket and 20-25 specialty shops.

We are seeing the impact of rising construction costs as well as increasing immigration rates driving the specialty market, with the majority of the 25 specialty retail tenants at our recently completed Kallo Town Centre of South Asian heritage.

Oreana Managing Director, Tony Sass, says although rental rates in NACs are rising, albeit at a slower rate than previous years, there is plenty of interest from cafes, restaurants and gyms.

“What really bodes well for the continued growth of specialty retail is Australia’s immigration increase. In Melbourne’s growth corridors we are seeing many immigrants arriving with the intent to establish a retail business close to their homes,” Sass says.

“There is a real entrepreneurialism in these outer suburban areas and these new retailers aren’t just driving economic growth and local jobs, but also helping build community through their new businesses.

“We are constantly focused on designing our centres to meet community and tenant needs.  We work closely with our tenants to guide them through their design and fit out process so that upon opening, they present an offer which delivers them, and the centre, every opportunity for sustained success.”

Specialty retail is also driving interest in the investment market. We recently completed the sale of a 65 square metre laundromat tenancy at The Village Berwick for $835,000, reflecting a yield of 5.14 per cent.

“The lower price point associated with smaller tenancies provides for a broader purchaser pool leading to strong competition for assets like the Berwick laundromat,” Sass said.

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