Knockout $3.2m deal opposite Jam Factory signals Chapel Street’s big retail comeback
In a strong show of confidence in Chapel Street’s revival, a “knockout deal” has seen an investor snap up two retail shops opposite the $3.75 billion Jam Factory redevelopment in South Yarra.
The freehold retail outlets at 467 and 469 Chapel Street, on Melbourne’s fringe, were sold prior to auction for $3.2 million, a deal brokered by Fitzroys, surpassing price expectations.
The well-positioned properties – one vacant, the other a cafe-cum-shop – were sold to a local buyer as a long-term investment through Fitzroys’ Chris James and Lewis Waddell on behalf of the vendors, Sterling Global, a private development and investment company.
Confidence up amid Chapel Street revival
Sterling Global purchased the South Yarra properties in 2018 with plans for a hotel project that never got off the ground. It has just completed the transformation of a heritage-listed State Bank building into a 42-storey mixed-use vertical village at 623 Collins Street in Melbourne’s CBD.
“The buyer is taking a long-term view as the suburb moves through the next phase of a generational development boom, with the sizeable increase in local residents, office workers, shoppers and tourists to the immediate area expected to provide a huge boost activity and trade on the strip,” says James.
“The buyer was also attracted to the underlying land value of the properties and the potential to combine the sites in the future,” he adds.
Retail is the market’s top performer
Retail remains one of the most vibrant sectors in the commercial property market, driven by robust population growth, rising household spending, lower interest rates, and a tightening supply, according to the latest research from Knight Frank.
In the first half of this year, retail properties – amassing $6 billion in transactions – were the most actively traded sector, followed by $5.6 billion in industrial assets, and $3.7 billion in office assets.
Chapel Street revival gains momentum
Fitzroys says the Chapel Street shop sales reflect a high land rate of approximately $10,000 per square metre, while bolstering a multitude of development efforts to regenerate the famous strip.
Once a glamorous shopping and dining destination with vibrant nightlife known to attract people watchers and cars performing “chap-laps”, Chapel Street and its nearby laneways deteriorated over time due to rising crime, including shootings and stabbings, as retail vacancies grew with concerns for safety and poor maintenance.
A multimillion-dollar push by the City of Stonnington to restore the precinct’s status as one of the world’s great streets is being bolstered by a wave of private investors, including Gurner Group and Qualitas’ landmark Jam Factory redevelopment, Oreana Group’s South Yarra Square transformation, Greystar’s build-to-rent project in the Forest Hill precinct, and V-Leader’s mixed-use retail and office project on the heritage-listed former Hotel Claremont site on Toorak Road, South Yarra.
The Jam Factory transformation
The 1858-built Jam Factory’s redevelopment will bring new office, retail and hospitality space, 886 apartments over five towers, two hotels, including a five-star stay and a boutique lifestyle hotel, and a new world-class Village cinema complex, along with a north-facing public piazza called Village Square, expected to be completed in 2027.
Before demolition started mid-December, The Jam Factory lived many lives in its 160 years, starting out as a brewery, becoming a jam and preserves manufacturer, and later, during its peak in the 1990s and 2000s, morphing into an iconic retail and cinema precinct that drew crowds to Chapel Street.
The Jam Factory redevelopment cost was increased to $3.75 billion, originally estimated at $1 billion less, when Gurner submitted plans for a third stage earlier this year.
The redevelopment includes the protection of its iconic red-brick facade, but all non-heritage components on the 20,000-square-metre site have been demolished.
Construction follows a decade of unsuccessful attempts by developers to bring the project to life, with Gurner Group finally sealing the deal on the long-awaited redevelopment after owning 35 per cent interest since 2021. Its joint venture with Qualitas saw the pair acquire the remaining 65 per cent interest in the site from Newmark Capital in June 2024.
A prime position opposite landmark
Located opposite the soon-to-be-thriving complex, the shops are positioned for growth in a high-traffic area near an array of renowned national and independent retailers, including Scanlan Theodore, Elk, Rustica, Marimekko, M.J. Bale, and Peter Alexander.
Sold with vacant possession, 467 Chapel Street was once home to clothing retailer Landes Warehouse. The 188-square-metre building is perched on 167 square metres of land, with what comes next anyone’s guess.
Next door, 469 Chapel Street is tenanted by Gold Over Blue, a cafe and Portuguese jewellery and homewares shop. The 192-square-metre building on a 173-square-metre site is being sold on a tight yield of 4.4 per cent. It brings in $88,400 a year in rent.
Why is retail doing so well?
Fitzroys says the campaign attracted broad interest from occupiers, investors, family offices and developers.
“The confidence of the purchaser to make a knockout offer before the auction shows more buoyancy in the market as rate reductions have been announced,” says Waddell.
Meanwhile, Alistair Read, a senior economist at Knight Frank, notes that the retail boom is driven by a surge in sales resulting from heightened consumer confidence.
“This, in turn, is expected to support improved retailer profitability and future rental growth,” he says.
“Looking ahead, the outlook for retail sales is positive with strong population growth and easing pressures on household budgets expected to drive higher per capita consumption. This will be particularly beneficial for discretionary retail spending which has been more impacted by cost-of-living pressures.”
New South Yarra opportunity
Meanwhile, another retail opportunity has come to market for the first time in 17 years, around the corner at 307-315 Toorak Road, South Yarra.
The 987-square-metre property is surrounded by some of the most luxurious housing developments in the country, which command some of the strongest prices. It is being marketed by Cushman & Wakefield in partnership with Gorman Commercial.
The property is underpinned by a strong mix of established tenants, including four restaurants and a level used as office space.
South Yarra, just four kilometres from the CBD, is renowned for its affluent residents, vibrant entertainment precincts like Chapel Street, and recreational spaces, including the Royal Botanic Gardens.
