The number of empty shops on Chapel Street, once Melbourne’s premier shopping destination, has surged to 44, new figures show, as tenants battle landlords, the impact of online retailing and the exodus of overseas and local brands from retail strips to the CBD and mega malls.
The four-kilometre long Chapel Street running through the suburbs of South Yarra, Prahran and Windsor is now lined with “For Lease” signs stuck on shop windows, where interiors have been abandoned leaving unopened mail scattered on the floor and empty shelves and clothing racks.
“People are just not spending. The only reason you come to Chapel Street now is to drink,” said Ellianna Gillham, the manager of Hoss Clothing, a local designer with a boutique at 587 Chapel Street. Hoss sits next to an empty shop.
Ms Gillham said in-store sales were down about 60 per cent on a year ago. “Our online store is doing better,” she said.
Figures from Beller Commercial, show most of the pain on Chapel Street, home to brands Country Road and boutique designers such as Sass & Bide, is being felt in the middle Prahran section of the strip – where the number of vacant shops has almost tripled to 24 from nine, two years ago.
Things are slightly better in South Yarra with 17 vacant shops, down from 19 two years ago, while at the Windsor end, which has benefited from the recent completion of residential projects, the number of empty shops has fallen to three from five.
Beller Commercial director Fred Nucara said a big part of the problem was private Chapel Street landlords who were unwilling to adjust their rents to something that was economically viable for tenants.
“As an example, Timberland were paying $126,000 a year in rent at 417 Chapel Street when they could only survive on about $50,000. But rather than the landlord adjust the rent, Timberland moved out and the shop has stood empty for seven months,” Mr Nucara said.
Despite, the high number of vacancies, Mr Nucara said he believed Chapel Street was now at the “bottom of the bell curve” and would benefit in the next couple of years from the completion of $1.4 billion of new residential, hotel and community projects, whose construction he said was currently detracting from the vibrancy of the strip.
Thirty-six year Chapel Street veteran Tony Christakakis, the operator of menswear store Jay Dillon at 450 Chapel Street, told The Australian Financial Review it was “inevitable” Chapel Street would end up in its current state.
He said post the GFC, tenants had to weather 20 to 30 per cent “market-based” rent increases and then do battle with unreasonable landlords when the retail environment changed and things became a lot tougher.
“Landlords were being told by their estate agents they could just find them another tenant if their current tenant left. Unfortunately the pool of replacement tenants has got thinner and thinner,” he said.
He said the strip had also been hurt by the failure of the major global chains (Topshop, Borders etc), the many pop-up shops selling cheap merchandise, and the ability of retailers to destroy their own businesses by discounting online.
“Thirty years ago, when I started, you could afford to take your time and establish yourself because the leasing costs were reasonable. Now you have to hit the ground running, that applies to everyone even the big global chains.”
Chapel Street landlord and head of the Chapel Street Traders Association, John Lotton, said most landlords had now adjusted their rental expectations and those still holding out would inevitably have to change if they wanted to have viable tenants.
“Rents south of the Jam Factory have dropped substantially. They are now lower than places like High Street, Armadale,” he said.
Mr Lotton said he expected significant improvement on Chapel Street over the coming years as major projects like redevelopment of the Jam Factory by Newmark Capital bring 5000 jobs to the area and more shoppers.
Other major projects in the area include the City of Stonnington’s $60 million Cato Square – the largest public parkland outside of the CBD, LK Property’s Capitol Grand high-rise tower, a $55 million mixed-use development by Paul Franze at the South Yarra “huts site” and a new Aloft Hotel to be developed by the Spotlight Group for Marriott.
Developer confidence is flowing through to some retailers, like Katherine Sampson, the founder of sandwich chain Healthy Habits who plans to open a juice bar at 663 Chapel Street in the “bad part of Chapel Street” and across the road from her burger bar Hello Sam Burgers.
“Rents are cheaper at this end of Chapel Street then they were 10 years ago. Chapel Street is evolving. The clothing shops are being replaced by exciting new food offerings, bars and restaurants,” Ms Sampson said.
“Six months ago you had no Asian grocery stories, now there are a number of them to cater for the Asian students moving in.”
Mr Christakakis said he also expected Chapel Street’s fortunes to improve in four or five years time once the new developments are completed. “But, he asked, will landlords then again push up rents 30 per cent?”