Financial Review Rich Lister Larry Kestelman says bricks-and-mortar retailing “is not dead” after leasing up almost all 6000sq m of retail space at the foot of Capitol Grand, his glitzy $700 million high-rise development nearing completion on the corner of Chapel Street and Toorak Road in Melbourne’s South Yarra.
While retail trade slumped to its worst year on record in 2019, according to official data released on Thursday, Mr Kestelman has secured a bevy of upmarket tenants for Capitol Grand including Dior Cosmetics & Accessories, London fitness chain 1Rebel, and renowned gallery operator and artist David Bromley.
Rents have been struck at between $1000 and $2500 a square metre – well above the $500 a square metre advertised for the dozens of vacant shops on the struggling Chapel Street retail strip.
In total 21 of the 23 shops in the retail arcade have been leased and will open in June, joining an already strongly trading David Jones Food Hall and popular bistro and bar Omnia, owned by Mr Kestelman.
Having long abandoned plans to fill the vast retail space with high-end fashion labels like Gucci and Luis Vuitton, Mr Kestelman’s LK Property Group turned its focus to upmarket food and beverage offerings as well as “unique” retail experiences that could not be easily replicated online.
The idea, he said, was to create a retail offering that appealed to the wealthy residents moving into Capitol Grand and the young professionals residing in nearby apartments – a demographic for which Mr Kestelman has coined the term “the selfish bunch” given their high disposable incomes and penchant for spending lavishly on themselves.
“[Physical] Retail is not dead. New versions of retail, which have a focus on delivering experiences and not just selling stuff, are doing well,” he told The Australian Financial Review.
“Everything we are doing at Capitol Grand is so unique.”
As an example, he pointed to London-based 1Rebel, which has leased around 900 square metres in Capitol Grand for its first Australian fitness studio.
1Rebel – which will trade as 1R in Australia – offers fitness classes in venues styled like futuristic film sets complete with DJs and cold-press juice bars
“This is not anything like a gym I used to go to. Think Virgin Active, but on steroids,” Mr Kestelman said.
1Rebel’s Australian CEO Amanda Maclean said its Capitol Grand venue would be the chain’s largest club to date.
“From the moment you walk into the club, you will become immersed in an experience. Australians will soon discover an entirely new, intense and incredibly addictive way of working out,” she said.
Added to the retail mix will be Dry & Tea, a combination hair stylist and tea house, luxury eyewear retailer One Point Seven Four, an HSBC Private bank branch and a real estate agency.
“We’re also going to open a private members club, like the Australian or Athenaeum Club, but modernised,” Mr Kestelman said. “There will also be an Asian fusion restaurant and bar, a degustation restaurant and an events space in partnership with the art gallery.”
The leasing success at Capitol Grand is a sharp contrast to neighbouring Chapel Street, whose high vacancy rate has highlighted the death of fashion retailers on suburban strips.
Mr Kestelman has been a harsh critic of the once bustling retail strip, calling its shopfronts “old, narrow, dark and no longer fit for purpose” at an industry event last year.
He doubled down on his criticism saying those retailers that had failed on Chapel Street ran “quite simplistic businesses selling clothing from China”, but said the strip would eventually rejuvenate itself.
With the retail space almost leased up and 85 per cent of the 380 apartments sold, Mr Kestelman is on the cusp of completing a project many said was too expensive and destined to fail when it launched five years ago.
Mr Kestelman said two-thirds of the apartments, funded by Goldman Sachs and built by Multiplex, had settled, with those on the higher floors of the 50-storey tower selling at between $25,000 and $37,000 per square metre.
“A few sales fell over last year – mostly overseas buyers who could not get their funds out or investors who could not arrange financing – but we have resold those,” he said.
Marketing of the final top-floor residences and penthouses will kick off soon.
“It’s been an interesting journey from when we first launched with Charlize Theron at the Australian Grand Prix in 2015,” Mr Kestelman said. “I am very pleased with the outcome.”
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