Flight Centre has left a gaping hole in the heart of Neutral Bay’s shopping strip, a thoroughfare that funnels traffic into Sydney’s prestigious suburbs of Cremorne and Mosman, about 7 kilometres north of the Sydney CBD.
It has led the charge of a handful of ASX-listed companies as well as several smaller businesses in withdrawing their presence from the neighbourhood, a move compounded by the COVID-19 pandemic.
There are 13 shops with “for lease” signs sprinkled along Military Road between The Oaks hotel and the footbridge about 600 metres down the street.
Most noticeable is the prominent corner shop that Flight Centre had occupied since 2013. It is one of about 370 of the travel agent’s stores that shut up shop after the pandemic shut down virtually all travel.
Two former bank branches at the same intersection, now empty, also stand out. St George bank moved out last month following Suncorp’s earlier exodus.
A shift towards digital banking pre-COVID-19 had already seen a move away from physical bank branches across the country, but the pandemic has only accelerated the trend.
Commonwealth Bank, NAB and ANZ still maintain a presence on the street.
Some of the other vacant properties along the road are the result of a flurry of new developments in the area, with wires dangling from the ceiling and dust and rubble strewn inside as well as office space for lease above.
‘”Neutral Bay was already reasonably hard hit pre-COVID with a higher than usual vacancy rate,” Amy Pfeiffer, from CBRE’s retail investor leasing team, said. “This stemmed from the completion of new developments, where two shops would get knocked down and five put in their place, along with the natural progression of tenants ending their leases and moving out.”
While there had been higher levels of vacancy on the strip before COVID-19 struck, the pandemic has exacerbated the problem, according to Rob Zappia, from Investment Property Group.
Mr Zappia is looking for a tenant to fill a 50 sq m space on Military Road, which a manchester brand, Benson Linen, had occupied for 10 years before moving out two years ago. It has been vacant since.
“They were paying about $75,000 a year; now you could pick it up for $25,000 a year,” Mr Zappia said.
Mr Zappia said the space had proved difficult to lease because it was so small and didn’t have a grease trap or exhaust fans required for restaurants, and retail tenants were non-existent. It’s made harder by a demolition clause in the lease because the area is ripe for redevelopment.
Mr Zappia said while some of the restaurants had been affected by COVID-19, business for hole-in-the-wall cafes or those with outdoor areas had been booming.
“Retail is completely dead at the moment. It’s really only restaurants and takeaway joints moving into the area,” he added.
Some landlords are only willing to take small rent reductions now that they are confident the worst of the pandemic has passed and knowing they are located on one of Sydney’s prime retail strips.
The Grove, a smaller shopping centre facing Military Road, is now completely occupied for the first time in several years. Two Asian restaurateurs, whose businesses were doing much better in the suburbs than their CBD stores, decided to set up shop in the area as did the operator of a clothing business who had previously sold her wares at weekend markets.
“During COVID we have seen an upswing in terms of the level of inquiry and deals being done,” Ms Pfeiffer said. “The bulk of this inquiry comes from operators looking to cash in on people working from home who are no longer going into their offices in the various CBDs throughout Sydney.
“During the height of COVID we completed three deals within the Neutral Bay market, with two of these parties being predominantly CBD operators. Both parties have also tweaked their business models to focus more on home delivery and takeaway,” she added.
Popular Thai restaurant chain Chat Thai was one of those businesses to open up on Military Road after business soared across its other suburban venues in Sydney.
Co-owner Matt Anderson, with his wife Palisa, signed a lease in April during the government lockdowns, after negotiating a good deal with the landlord.
They had plans to open a “dark kitchen” to respond to an uptick in takeaway orders in suburban locations.
By the time they were ready to open the lockdown had ended and they decided to open a fully-fledged restaurant and small “supermarket” selling fresh and frozen Thai food.
“We had looked at Neutral Bay in the past, multiple times, but had decided to not move forward – a combination of high rents and the location. But COVID changed all of that,” Mr Anderson said.
“The city is still pretty quiet so we needed to place some of that revenue in the suburban outlets and Neutral Bay was a prime target,” he added.
But not all food retailers have been performing well along the strip. Wild Ember, a fast food outlet serving falafel and skewered meat, closed last month, after occupying the space for just year. It was the owner’s first business, which struggled to maintain momentum once COVID-19 struck.
Down the road, pharmacist Taj Zelka bought into the area only a month ago, buying an established chemist opposite the former Flight Centre store. He isn’t worried about foot traffic.
“I don’t think COVID has slowed many people down. Having said that, walking around there are a number of empty shops, so that must be a sign of something.”
While foot traffic has picked up since the peak of the pandemic, the holes left by the two banks and Flight Centre aren’t showing signs of being filled any time soon.
Mr Zappia expects it will be difficult to fill those spaces.
“Flight Centre is the perfect example of the industry affected by COVID. And the more empty space, the more competitive it is and prices start to come down.”