- Fivex Commercial Property Media
- No comments
High rents on ground floors and the large spaces needed by international retailers are driving the industry upwards.
Rents have risen above $9000 a square metre on Melbourne’s Bourke Street Mall. Prices are even higher on Sydney’s Pitt Street Mall, making them among the most expensive shopping strips anywhere.
Rents on higher floors are lower, making what is known as “vertical retailing” more cost-efficient. Multiple levels allow stores of 2000 square metres and more.
“International retailers’ space requirements are so much bigger and given the space restrictions in places such as Sydney, the reality is they have to go up or down, and sometimes even miss out on a ground floor location,” CBRE retail director Leif Olson said.
UK fashion retailer Top Shop has opened a multi-level flagship store in Emporium Melbourne, the seven-level poster child for vertical retailing in Australian CBDs.
Hilton Seskin, who owns the Australian Topshop franchise, said vertical retailing was not totally new to Australia. What has changed is the space used.
“Now we are seeing large multi-level stores taking on 2000 square metres instead of 500 square metres.
“What has also changed is the customer’s willingness to shop multi-level, which in the past has been a challenge,” he said.
Also in Emporium is a four-level UNIQLO store, the Japanese retailer’s first in Australia.
It is 2180 square metres – big enough to accommodate a vast range of clothing and accessories. Sales are strong, according to a spokeswoman.
Angus McNaughton, chief executive of the CFS Retail Property Trust, joint owners of Emporium Melbourne, said vertical retailing was challenging but can be “very powerful” if you get the format right. “Getting foot traffic to all levels is critical. Getting people to go all the way to the top floor can be quite difficult,” he said.
Enticing shoppers upwards
To encourage people to visit the Emporium’s upper floors, a food court was installed on the top floor with Myer.
“We also have great vertical transportation and strong site lines, so that shoppers can see the activity on other levels and get there effortlessly,” he said.
On neighbouring Bourke Street Mall, Swedish retailer H&M occupies all four levels of the GPO Building.
Spanish fashion icon Zara has three levels in a building further along. Chanel is opening a four-level store on Russell Street. Gucci and Dolce & Gabbana are trading over two levels on Collins Street.
In Sydney, US retailer Williams-Sonoma has three levels in Bondi Junction for its Pottery Barn, West Elm and Pottery Barn Kids stores.
Pennie Rende, Williams-Sonoma’s Australian head, said vertical retailing was very common in the US. The $6 billion retailer’s San Francisco store is spread over five storeys.
“Our Bondi Junction retail area has given us the opportunity to showcase all four of our unique brands under one roof, which is a world first for Williams-Sonoma,” Ms Rende said.
Elsewhere in Sydney, UNIQLO plans to open a store this year on the second floor of the Pitt Street Mall. It will skip the ground floor. “UNIQLO’s Tokyo flagship store is 12 storeys, something unheard of yet in Australia,” Mr Olson said.
Global trend
CBRE leasing agent Zelman Ainsworth said US landlords were taking advantage of rents over $31,000 a square metre on Fifth Avenue to convert offices into shops.
“This trend is continuing to spread around the world in all major retail markets including Melbourne and Sydney, due to limited ground floor space in prime location and increasing rentals,” he said.
Last year Sydney boutique investor Fivex Commercial Property converted 1800 square metres of office space on the first floor of Riverview House, on the corner of Flinders and Elizabeth streets, into space for Japanese discount chain Daiso. Daiso signed a 10-year lease, paying net rent of about $700 per square metre. The two floors above have been converted into gym space for Fitness First.
“So far it’s been an enormous success,” said Fivex general manager Lesli Berger.
Mr Berger said rising ground floor rents would drive more retailers in Sydney and Melbourne to consider leases on upper levels.
“It’s the first time since the emergence of the CBD shopping centre model that we are seeing vertical retailing apply to smaller scale assets,” he said.
Larry Schlesinger
Mercedes Ruehl
Australian Financial Review 2 August 2014