Trouble at the mall: Melbourne’s prize shopping strip faces lean years

Bourke Street Mall is facing a challenge to retain its premier status as a retail shopping strip, with the pandemic and changing shopping habits looking set to force radical changes.

Shop rents, traditionally among Melbourne’s most expensive, have tumbled, according to one of the city’s leading commercial real estate agents, as foot traffic on the mall remains stubbornly low, even when the city is not locked down.

Retail vacancy rates have soared, with commercial real estate agents saying they cannot remember a time when shops lay empty on the strip.

Two major new redevelopments in the pipeline are expected to dramatically change the flavour of the mall, with a supermarket and hotels to shake up the traditional occupier mix, but several years of major construction work must be completed before the strip’s new face is revealed.

Data from real estate giant CBRE shows the scale of the challenge, with average asking rents for retail space on the mall at the end of June just above $7500 per square metre, more than 20 per cent down from the $9500 landlords were charging a year before.

CBRE found a vacancy rate of 21 per cent in the mall this year, against just 12 per cent in the broader CBD, although the figure is skewed by several shops that were deliberately left empty by landlords as they prepared to redevelop several buildings on the south side of the street.

The property firm used the data platform Pathzz to calculate that footfall in the mall was 28 per cent lower in June and July than the same period in 2020, and less than 20 per cent of volumes observed in the same period in 2019.

Younger people are staying away, with the proportion of twentysomethings visiting the mall dropping to 24 per cent this year compared to 34 per cent for the same period in 2019.

CBRE senior manager of retail services Jason Orenbuch said “for lease” signs on the mall were virtually unheard of before the pandemic, when shop leases were routinely snapped up before coming to the open market.

“You’d literally pick up the phone and make two calls, off market, and you’d have more than two or three [retailers] competing for it,” Mr Orenbuch said.

“It’s pretty grim down there at the moment.”

Mr Orenbuch said big brands were still attracted to the mall but said prospective occupiers were waiting for the worst of the pandemic to blow over before making their moves.

“We are talking to a couple of internationals [brands] that will look at Bourke Street Mall in the next three to five years, and they do want to roll out some new international brands that haven’t launched in Australia. They do see it coming back strong, when everyone is vaccinated, the students come back, but they wouldn’t do anything in the short term,” the CBRE executive said.

Retail expert Martin Ginnane and commercial property consultant Richard Jenkins say Bourke Street Mall must be reinvented to keep pace with modern shopping trends.Credit: Eddie Jim

Another commercial property specialist, Richard Jenkins of Plan 1 consultancy, agreed the long-term prospects for the mall remained bright despite the short-term challenges, pointing to a property deals worth hundreds of millions of dollars in the past 12 months, with big investors still seeing the mall as a good long-term bet.

“I think rents will be impacted in the short term but there are premium locations in CBDs and Bourke Street Mall is one of them,” Mr Jenkins said.

“Certain retailers will demand to be in the those premium locations so it will come back.”

The presence of Bourke Street institutions Myer and David Jones looks secure in the medium term with more than 10 years left on Myer’s lease on its nine-storey flagship building.

David Jones told The Age this week that despite its plan to leave its 11,000-square-metre menswear shop at 299 Bourke Street, which will be redeveloped into a mixed-use retail complex, the chain was “committed to creating a premium flagship” store at 310 Bourke Street.

Retail expert Martin Ginnane said he too believed the mall would retain its attraction for retailers, but that shoppers should expect a new kind of retail experience from a reinvented strip in the coming years.

“Any new development of Bourke Street Mall must focus on retail for the 21st century and retail for the post-pandemic period,” he said.

“Any brand or any redevelopment of a brand that is setting up on Bourke Street Mall will definitely realise the value that being here brings them and if they’re going to make the most of that value, they’re going to have to take on the latest trends and technology.

“That could mean seamless purchasing, where everything is done on your phone without any payment being taken in-store or show-rooming.”

Melbourne lord mayor Sally Capp said the pandemic had hit CBD retailers at a time when the sector was undergoing historic “bricks versus clicks” upheaval.

“We know there’s going to be a period of uncertainty about how strongly retail bounces back and what footprint physical stores will have in the CBD. The most important thing to drive retail sales is to encourage people back into the city, whether it is for work or socialising.”

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