Melbourne CBD sees a growing trend of small retail spaces: HTW

There is a growing trend for small retail spaces in the Melbourne CBD, according to valuation firm Herron Todd White.

The property investment firm said in a report that there is also a trend of low to medium mixed use properties in the inner ring of Melbourne.

In Melbourne’s CBD and within the 15 kilometre inner ring from Melbourne’s CBD, there are two entry level price categories currently popping up in the retail market, said the report.

“Firstly, within Melbourne’s CBD, there is a growing trend for very small retail spaces to be created in areas that were previously not used for retail purposes," said HTW.

“For example, only late last year, a small 20 square metre cafe known as Saluministi was created in Flinders Lane, in the base of an existing carpark, where a tenant entered in to a new five-year lease at $35,000 per annum on a gross rental.

“Similarly, in Equitable Lane within a narrow space being the former foyer of a commercial building, a new coffee shop known as Heresy was created utilising an area of 22 square metres at a starting annual gross rental of $40,750 per annum."

While these spaces are not yet for sale, they are being created in more inventive, small retail spaces and when made available for sale, are likely to be at prices below $1 million.

“This is an affordable entry level for Melbourne’s CBD and we would expect yields of between 3% and 4% for these assets."

“Secondly, given the trend of low to medium rise mixed use retail/residential developments in the inner ring of Melbourne we are seeing a number of small sub-100 square metre retail premises selling in the current market in these locations,” the report stated.

These properties are either new or currently under construction, according to HTW.

“These isolated retail premises, generally sit below new, or currently under construction, residential apartment complexes and generally offer a food/coffee option for existing and nearby residents in this specific location."

“For example, in one recent off-the-plan sale in Elland Avenue, Box Hill, a 100 square metre retail shell just sold for $600,000 excluding GST. Based on a hypothetical rental of $30,000 per annum net, and after deducting appropriate letting up allowances and adjustments for non recoverable outgoings, this sale price shows a yield of approximately 4.75%."

It said such examples abound in these inner to middle suburban locations and are expected to be available in the foreseeable future.

“At present we are seeing yields in the order of 4% to 5% for these small retail orientated strata assets."

“The lower price retail sector of the Melbourne market is performing well and we expect this trend to continue in the short to medium term,” the report said.

A retail corner property at 9-15 Little Oxford Street, Collingwood (above) has been listed for sale.