CBD retailers look up in quest for better returns

Some international retailers such as H&M that have entered Australia have taken multi-level stores.

CBD landlords are looking to improve their returns by adding retail tenants in more places than only the ground level, while retailers are taking the opportunity to add extra floor space at limited extra cost, agents say.

Rising land taxes in Melbourne and restricted supply of traditional CBD retail space are bringing multi-level retail into focus.

The arrangement often allows landlords to collect higher rent for the first level of their building from a retailer than they would for an office tenant in the same space.

Commercial Insights: Subscribe to receive the latest news and updates

But retailers pay less to add first floor or basement space to their ground level location than they would to expand sideways.

“Retailers cannot get the space they require on one level. The size is not there and the rent is not sustainable,” CBRE head of Victorian retail leasing Zelman Ainsworth tells The Australian. “With the land tax growth, landlords are becoming more entrepreneurial and extracting more value.”

Multi-level retail leases are a “win-win” situation, according to JLL head of retail, property and asset management, Australia, Tony Doherty. “The rental becomes more affordable for the tenant, and the landlord can still attract the retailer,” Doherty says. “In most cases they have the ability to generate more rent from a retail store than they would from an office.”

Retail is also a better use of basement space than offices, he says.

British high-end retailer Burberry is currently fitting out a multi-level store on Collins St in Melbourne, while apparel store Zambesi has opened on the ground and first floor of 75 Flinders Lane, and Bluebell Bridal took a level one space at 141 Flinders Lane.

You might put your childrenswear downstairs or upstairs, that encourages people to walk through the whole store

Other multi-level leases over the past couple of years include up-market brands such as Coach and Hugo Boss and service retailers such as OPSM.

Some international retailers that have entered Australia in recent years have taken multi-level stores, such as Sephora in Sydney, or H&M across Sydney, Melbourne and Brisbane.

A two-level boutique retail site across ground and basement floors is currently available for lease at 287 Little Collins St through CBRE.

Despite a string of high-profile retailers collapsing recently, rents for retail space nationally are still expected to rise over the medium term as vacancy rates hold steady or tighten, a recent NAB survey found.

Low vacancy rates encourage creative uses of space, with retailers considering how to entice customers upstairs or downstairs.

Wider staircases or grander entrances to help customers see there was another level to the store were key, but retailers were also hosting parties or VIP nights in store to create interactive experiences across levels, Mr Ainsworth said.

Colliers International director of retail leasing Mike Crittenden says signage is an important consideration in making the space consumer-friendly.

“The biggest thing is ease of ­access — lifts where possible, ­escalators where possible,” Crittenden says.

“You might put your childrenswear downstairs or upstairs, that encourages people to walk through the whole store.”

This article originally appeared on www.theaustralian.com.au/property.