This report examines ground-floor retail strip shopping centres within ~10km of Melbourne’s CBD that are anchored by major supermarkets (excluding enclosed malls). It covers seven key aspects: (1) vacancy rates (current and 10-year trend), (2) rental trends over the decade, (3) strengths and weaknesses of specific strips (Chapel Street, Glenferrie Road, Bridge Road, Sydney Road, High Street, etc.), (4) current leasing activity (advertised leases, asking rents, tenant demand), (5) average time to re-let vacancies, (6) tenant turnover and defaults, and (7) investment yields and capital values (current levels and trends). All data and insights are drawn from recent publications by industry sources – including the Property Council of Australia, the REIV, and active commercial agents – to provide up-to-date analysis for professional investors.
1. Vacancy Rates: Current Level vs Past Decade
Historic Trend: A decade ago, Melbourne’s strip retail vacancy averaged around 7–8%. For example, in 2014 the average vacancy rate across the shopping strips was about 7.7%. Mid-2010s saw rising vacancies in many iconic strips, driven by soft consumer spending and competition from CBD retail and online shopping. By 2018, the average strip vacancy had crept up to 8.6%, the highest level since 2007. Some strips experienced severe difficulties: Bridge Road in Richmond, once a bustling outlet strip, hit a vacancy of ~20% in 2014 (and certain segments even approached 30% vacancy by 2015). Chapel Street (South Yarra/Prahran) similarly saw vacancies climb to 15.6% in 2019 and an alarming 20.4% at the peak of the COVID-19 pandemic (2020). Other strips like Glenferrie Road (Hawthorn) and Camberwell Junction roughly doubled their vacancies between 2019 and early 2020 (e.g. Glenferrie Hawthorn jumped from ~7.7% to 12.6% in that period), reflecting a broad downturn even before pandemic lockdowns.
Pandemic Peak and Recovery: The worst strip vacancy levels occurred in 2020–2021 during Melbourne’s lockdown era. Overall strip vacancies spiked into double digits – research by Plan1 indicated prime strip vacancies reached about 12.8% in 2022 before easing, and Fitzroys recorded an average 10.3% vacancy in 2021 (the all-time high). However, a strong recovery has since taken place. By 2022 the strip-average vacancy fell to a long-term low (~6.7%), and by late 2023 it dropped further to 6.2%, the lowest on record. As of 2024, strip vacancies remain around 6.3%, essentially holding near that historic low. This is well below the long-run average (~7.4–7.7% depending on the timeframe). Figure 1 summarizes the overall vacancy trend:
| Year | Average Strip Vacancy (Melbourne) |
|---|---|
| 2014 | ~7.7% (iconic strips average) |
| 2018 | ~8.6% (peak since GFC) |
| 2020–21 | ~10–12% (pandemic-era peak) |
| 2023 | 6.2% (record low) |
| 2024 | 6.3% (stabilising near record low) |
Drivers: Several factors underlie this trajectory. E-commerce and CBD competition hurt strips in the mid/late-2010s – e.g. the opening of Emporium in the CBD drew shoppers from suburban strips. The pandemic initially exacerbated vacancies via prolonged closures, but it also triggered a “local shopping” renaissance. Work-from-home arrangements and lifestyle shifts mean Melburnians now spend more time (and money) in their local neighbourhood “villages” rather than the CBD. This hyper-local patronage has helped backfill empty shops at an unprecedented pace once lockdowns ended. By 2023–24, many strips report vacancy rates near or below pre-2010 levels, despite economic headwinds (inflation, rate rises). In short, vacancy rates have swung from multi-decade highs to multi-decade lows in just a few years – a testament to both the volatility of strip retail and its resilience when supported by local consumer demand.
2. Rental Trends: Growth, Decline, and Rebound
2015–2019: Retail strip rents were generally flat or declining in real terms through the late 2010s, with marked drops in troubled strips. For instance, Bridge Road’s landlords had to heavily discount rents as vacancy soared mid-decade: prime rents on Bridge Rd fell from about $500–$650/m² to $300–$500/m² (per annum) around 2014–2015. This ~40% rent correction reflected the strip’s severe downturn. Chapel Street likewise saw rents soften in the late 2010s as many fashion tenants departed – by 2019, landlords began “reconsidering asking rental levels” to lure new tenants. Even in healthier strips, rental growth was modest; rising online retail competition and patchy retail sales meant few strips could sustain rent increases above inflation during this period. One notable exception was Church Street, Brighton, a blue-chip strip with virtually no vacancies – it consistently commanded among Melbourne’s highest rents, and by the late 2010s prime rents there were already around $1,300–$1,400 per m², supported by an affluent catchment and a queue of national retailers vying for space.
2020–2021: The pandemic put further downward pressure on rents. Many tenants obtained temporary rent waivers or reductions, and new leases were often signed at discounted rates or with generous incentives. Landlords on strips like Chapel St “recalibrated” rents lower to fill space. As a result, new entrants in 2021–22 were able to secure more affordable deals than seen in years. These adjusted rent levels – effectively a reset – were a catalyst for occupancy recovery: e.g. clothing retailers moved into Chapel Street’s vacant shops enticed by “more favourable leasing terms”. In summary, rents either fell or at best stayed flat through the pandemic, especially in secondary locations.
2022–2025: Currently, the rental trend is stabilizing and even ticking upward in prime strips, while still relatively soft in secondary ones. With vacancies now low, market rents have generally stopped falling. In prime locations there are signs of positive growth: agents report that rents have been maintained or even showing growth in some cases as demand returns. For example, High Street, Armadale (a high-end boutique strip) can now achieve top rents up to about $2,000/m² for absolutely prime shopfronts – among the highest strip rents in the city. Similarly, long-term stable strips like Church St, Brighton continue to see strong rents in the mid-$1,000s per m² range. By contrast, on historically weaker strips (e.g. Bridge Road, or less footfall-heavy portions of strips), asking rents remain well below their mid-2010s peaks. In those areas, landlords often prioritize occupancy over rent growth, meeting the market at realistic rates. Indeed, industry feedback indicates landlords have become far more flexible and “willing to meet the market” on rent in order to do deals. This has kept overall rent levels competitive and allowed many new local businesses to flourish.
Outlook: In the near term, rent trajectories will likely diverge by strip quality. Strips with strong foot traffic and anchors (grocers, essential services) may see modest rent increases as competition for the best sites heats up. Many new tenants reportedly are locking in leases now, anticipating economic improvement and wanting to secure a good location “ahead of the curve” while rents are still relatively low post-COVID. On the other hand, strips that are still rebuilding their tenant mix may have stagnant or only slowly rising rents, as landlords keep terms attractive to fill remaining vacancies. Overall, after a decade of volatility, strip rents are much more affordable in real terms than they were 10 years ago – a fact that has arguably spurred the recent influx of independent retailers and hospitality operators.
3. Key Retail Strips: Strengths & Weaknesses
Below is an analysis of specific prominent strips within 10km of the CBD – their current performance, challenges and anchors:
Chapel Street (South Yarra / Prahran)
Overview: Chapel Street is a long strip spanning South Yarra, Prahran, and Windsor, traditionally known for fashion boutiques, nightlife, and Prahran Market. It has multiple supermarket anchors: e.g. Woolworths at the South Yarra end, and Coles adjacent to Prahran Market, which help draw consistent grocery foot traffic.
Current Vacancy: Chapel St was hit hard by retail downturns but is in recovery. In South Yarra, the vacancy rate is now down to 7.1% – a long-term low – after peaking at about 20% during the pandemic. This is the first time in years Chapel Street has seen single-digit vacancy. The Prahran/Windsor section (historically slightly cheaper rents) has also improved; overall Chapel Street vacancy (blended) is around the high single digits, a significant improvement from ~15%+ levels of a few years ago.
Trend & Drivers: Chapel Street’s weakness in the late 2010s was the exodus of fashion retailers (due to online competition and high rents), leaving many empty storefronts by 2019. The COVID period compounded this as hospitality and nightlife shut down. However, the strip’s fundamentals remain strong: an affluent local catchment, significant apartment development (adding resident population and spending power), and strong “destination” appeal. Recent large projects (e.g. the upcoming $2.75bn Jam Factory redevelopment and new residential towers) are set to further boost footfall. Landlords have adjusted by lowering rents and offering incentives, which has attracted a wave of new tenants (especially in fashion and specialty retail, which saw a resurgence of ~+2.5% in tenancy share last year). As a result, Chapel Street is reinventing itself: empty shops are filling with a mix of boutique clothing stores, health/beauty services, and upscale hospitality. The strip’s “cool factor” is returning too – the adjacent Greville Street precinct and Chapel’s Windsor end are noted for trendy eateries and bars. The key weakness to monitor is rental sustainability: historically, overly high rents drove tenants out. Now, with rents “recalibrated” post-pandemic, the strip is on firmer footing. In summary, Chapel Street’s strengths are its prime location and revitalized mixed tenant mix, while its weaknesses (in past years, high rents and reliance on discretionary retail) are being actively addressed. Investor interest is picking up again, evidenced by recent property sales on Chapel/Toorak Road at sharp yields (sub-3%).
Bridge Road (Richmond)
Overview: Bridge Road is a linear strip through Richmond that historically was Melbourne’s outlet shopping mecca. It has grocery anchors at both ends (Coles near the Epworth Hospital end, and a Woolworths just off Bridge Rd at the eastern end/Victoria Gardens), but its mid-section lacks a central anchor and has struggled with identity.
Current Vacancy: Bridge Road remains one of the weaker strips in terms of vacancy, though conditions vary by segment. The eastern stretch (toward Hawthorn/Burnley, with more cafes and near the Woolworths/Victoria Gardens complex) saw vacancies decrease recently as new eateries have moved in. However, the central portion (around the former factory outlet blocks between Church St and Lennox St) still has the highest vacancy rate of any Melbourne strip at roughly 14.7%. The western end (near Punt Road and Epworth Hospital) also ticked up to around 13.8% vacant. Some reports that average vacancy has fallen to ~7% likely reflect improvements on the east end, but in truth Bridge Rd’s recovery is uneven, with pockets of high emptiness persisting.
Trend & Drivers: Bridge Road’s decline began mid-2010s as outlet retailers closed en masse (shoppers shifted to Direct Factory Outlet malls and online). By 2015, its vacancy hit a staggering 30% in the worst stretch, and rents plunged accordingly. The strip lacked anchor tenants and destination appeal, and was bypassed by new residents (little residential development was permitted then). In recent years, Bridge Rd has been “rebalancing” from a fashion outlet strip into three distinct precincts: a hospital/medical precinct at the west (servicing Epworth and health offices), a hospitality-focused precinct at the east (with new apartments and cafes near Burnley St), and a struggling retail core in the middle. The introduction of Coles and other large-format tenants has helped at the edges, but the middle lacks foot traffic drivers. Strengths of Bridge Road now include relatively low rents (making it a budget option close to the city) and some large floorplates that can suit medical or showroom uses. Weaknesses remain its length and fragmentation – it “lacks focus” and cohesive identity – and ongoing competition from the revitalized Swan Street in Richmond and from online retail. Encouragingly, overall vacancies have fallen from their peak and food/bev operators have begun absorbing spaces in the eastern section (the strip’s proportion of hospitality tenants is rising). But Bridge Road’s central zone will likely need further repositioning (e.g. more non-retail uses or a major redevelopment) to fully address its high vacancy. Investors approach Bridge Rd cautiously, demanding higher yields for the risk; indeed Bridge Road freeholds trade at softer yields (often 5–6%+) given the leasing challenges, compared to inner strips in stronger locales.
Glenferrie Road (Hawthorn)
Overview: Glenferrie Road, Hawthorn is a vibrant strip serving an affluent inner-east community and the large student population of Swinburne University. It has a Coles supermarket anchor centrally located near Glenferrie Station, as well as a Lido cinemas and many national-brand shops, creating a strong draw. (Note: There is also a Glenferrie Road, Malvern further south; here we focus on Hawthorn which is within ~6km of the CBD.)
Current Vacancy: Glenferrie Hawthorn is performing well. Vacancy has trended down to around 6–7% in 2023-24, which is below the long-term average. This is a significant improvement from the ~12.6% spike it saw around early 2020. In fact, Glenferrie’s vacancy reduction of about 1.1 percentage points over the past year brought it to 6.6% as of late 2024, indicating a healthy, balanced strip with only a handful of empties.
Strengths: Glenferrie Road’s strengths lie in its strong catchment fundamentals – a mix of wealthy residents and young students ensures demand for both high-end boutiques and everyday convenience shops. The strip has both day and night trade (with cafes, restaurants and a cinema for evening activity). Crucially, the presence of Coles and other essential retailers (pharmacies, banks, etc.) means Glenferrie captures steady non-discretionary foot traffic, insulating it from downturns. Even during the pandemic, essential services kept parts of the strip active (and recent analysis shows suburban strips with supermarkets had resilient traffic). Glenferrie also benefits from a nearby train station and tram, boosting accessibility.
Weaknesses: There are relatively few glaring weaknesses – perhaps the biggest challenge is competition from other nearby centers (Camberwell Junction to the east and the CBD to the west). During 2020, Glenferrie did see some high-profile vacancies (its 12.6% vacancy in 2020 was an all-time high), possibly due to student population dips and some retailers failing. But it rebounded quickly by attracting new tenants. Rent levels on Glenferrie Road are mid-range for inner suburbs (not as high as Brighton or Armadale, but not cheap), roughly in the order of a few hundred dollars per m² for typical shops. These rents have been relatively stable; landlords did moderate expectations when needed. Overall, Glenferrie Road is viewed as a stable, “A-grade” suburban strip with balanced tenant mix (fashion, food, service all represented). It is a strip that performed solidly pre-pandemic and continues to do so, now with even lower vacancy. Investors see it as lower risk; recent yield guidance for prime Glenferrie freeholds would be in the low 4% range (pre-2022 some transacted even sub-4%).
Sydney Road (Brunswick)
Overview: Sydney Road in Brunswick is Melbourne’s longest retail strip, known for its diverse mix of discount stores, ethnic grocers, bridal shops, live music venues, and cafes/bars. It serves a dense, hip inner-north community. The strip is anchored by supermarkets albeit just off the main road – e.g. the Barkly Square shopping centre (with Coles, Woolworths & ALDI) lies along Sydney Rd in Brunswick, and there are multiple independent grocers and a Safeway further north. These anchors, while technically in small centres, feed foot traffic onto Sydney Road.
Current Vacancy: The inner-north strips, including Sydney Road, have been standout performers post-COVID. Sydney Road, Brunswick’s vacancy has fallen to only about 4–5% in late 2023. Fitzroys reported Sydney Rd at 4.4% vacant, which is very low – essentially full occupancy aside from a few empty shops. This is a marked improvement from pandemic times and is even lower than pre-pandemic vacancy levels.
Strengths: Sydney Road’s strength is its resilience and diversity. It caters to a broad demographic – long-time migrant communities and newer young residents – with a variety of budget-friendly retail and hospitality. During economic downturns, Sydney Rd often fares better because many tenants are offering essential or value goods (e.g. fresh food markets, low-cost variety stores). The strip also became something of a local dining/nightlife destination in recent years, and as Melbourne’s “dining and arts” scenes returned post-lockdowns, Sydney Road’s vacancies were quickly snapped up. The night-time economy (music venues, bars) is a major draw that many other strips lack. Additionally, relatively affordable rents (compared to southside strips) make it easier for small businesses to start up on Sydney Rd, leading to fewer protracted vacancies. The presence of the Barkly Square mall ensures continuous grocery/shopping traffic on weekdays and weekends, benefitting surrounding shops.
Weaknesses: Sydney Road’s challenges include its length (the Brunswick/Coburg stretch is several kilometers, and not all sections are equally vibrant) and some large, older-format shops that can be hard to lease (e.g. old furniture showrooms). The farther north one goes (into Coburg), the more dispersed the activity becomes. Another weakness is that some buildings are aging or need repurposing; there have been efforts by local council to encourage upgrades. However, new apartment developments along and around Sydney Road have injected fresh life (more residents). Overall, Sydney Road is considered a strong strip at present – vacancies are low and demand is solid for spaces, especially from hospitality entrepreneurs and service businesses targeting the young population. It is less “prime” in rent terms, but that in itself is a competitive advantage as cost-of-occupancy remains sustainable.
High Street (Armadale & Northcote)
High Street has multiple distinct retail sections along its length. Two notable segments within 10km of the CBD are: High Street, Armadale (an upscale strip in the south-east) and High Street, Northcote (a trendy strip in the north). Both have shown strong performance, albeit catering to different markets.
- High Street, Armadale (Inner South-East): This strip, centered around Armadale’s train station, is a high-end boutique shopping village. It doesn’t have a large supermarket on the strip itself (the nearest big grocer is a Woolworths just at Glenferrie Rd & High St, on the border of Armadale/Malvern), but it boasts many luxury boutiques, galleries, and cafes that act as anchors in their own right. High St Armadale currently enjoys a very low vacancy of ~2–4%. In 2023 it was recorded at 2.3% vacant, one of the best-performing strips citywide, and in 2024 around 4.1% (still near long-term lows). This is a dramatic improvement from about 10% vacancy a few years prior. Armadale’s strength is its luxury retail niche – it has a “roll call of high-end boutiques” and specialty food purveyors serving Melbourne’s affluent eastern suburbs. Consumer spending here is less economy-sensitive. Rents are correspondingly the highest in Melbourne; absolute prime spaces on High St Armadale can command around $1,500–$2,000/m² per year, which actually rivals CBD rents. These lofty rents are supported by very limited supply (the strip is short and tightly held) and strong retailer demand – High St Armadale was even named the world’s “coolest street” in a 2024 TimeOut ranking, reflecting its international-caliber mix of shops and eateries. A minor weakness for Armadale is that its trade is mostly daytime retail (less evening activation), but overall it is a blue-chip strip with virtually no structural issues. New developments on the strip have added apartments and even more retail space (e.g. the historic Kings Arcade expansion), which have been absorbed quickly by incoming tenants (including famous Sydney luxury butcher Victor Churchill and pastry brand Lune).
- High Street, Northcote (Inner North): High Street in Northcote (and extending into Thornbury) has transformed over the past decade from a secondary local strip to a hip destination. It has a Coles-anchored shopping plaza just off High St (Northcote Plaza), plus numerous bars, music venues, and independent retailers that draw young crowds. Northcote’s High St vacancy is currently very low – around 3.9% as of 2023 – which is near record lows for that area. The strip has benefitted immensely from the post-pandemic preference for local dining/entertainment. With multiple new apartment buildings along High St, the built-in customer base has grown. Strengths of High St Northcote include its vibrant nightlife and food scene (often cited in “coolest neighbourhood” lists) and a strong community feel. Rents are moderate (much lower than Armadale) – attractive to creative startups – and many landlords are local owners who have been flexible. The weaknesses historically were some larger vacant sites and lower spending power than the south; however, given its current popularity, Northcote’s main issue may be managing gentrification (rapid rent rises could price out some edgy independent tenants in the long run). For now, though, High St Northcote is considered a success story, with vacancy around 4% and a balanced tenant mix of specialty retail (boutiques, bookshops), services (gyms, salons), and plentiful cafés, pubs and restaurants.
(Other strips: It is worth noting a few other nearby strips for context. Lygon Street, Carlton – Melbourne’s “Little Italy” – is ~2km from the CBD and had a tough pandemic (vacancy hit ~20%) but is now back down to ~6% vacant. Smith Street, Collingwood/Fitzroy – anchored by a Coles – is thriving with only ~3.2% vacancy and global recognition as a top “cool street.” Brunswick Street, Fitzroy – no big supermarket but a hospitality hotspot – also sits around ~4–5% vacant. These inner-north strips underscore how experiential retail and F&B have driven recovery. On the flip side, Acland Street, St Kilda (approx. 6km out) has struggled, with vacancy spiking above 25% – making it currently one of the highest vacancy strips in the city, due to loss of tourism and local turnover. Each strip’s fortunes hinge on its mix of anchors, catchment, and adaptability.)*
4. Current Leasing Activity & Tenant Demand
Volume of Listings: The volume of retail space being advertised for lease on these strips has diminished substantially compared to the heights of vacancy in 2020–21. Today, many formerly dark shopfronts are occupied, so there are fewer “For Lease” signs overall. For instance, on a strip like Chapel Street, where dozens of vacancies were being advertised two years ago, the count is now much lower as spaces have been absorbed. That said, opportunities do remain and active agents still have a pipeline of listings, especially in segments like Bridge Road’s mid-section or secondary pockets of other strips. Properties under development also periodically hit the market for pre-leasing. In general, leasing agents describe the market as active and competitive – spaces in prime positions tend to lease relatively quickly (often within a few weeks to a few months), whereas less prime locations may still take longer and multiple marketing campaigns to secure a tenant.
Tenant Enquiry & Sought Uses: Enquiry levels are reportedly strong in 2023–2025, led by certain sectors. Hospitality (food and beverage) tenants continue to be the most active, driving a large share of new lease deals. Through and after COVID, cafe and restaurant operators seized the chance to pick up fitted-out shops (many vacated by others) at reasonable rents, allowing quick expansion into new neighbourhood markets. That trend persists – there is high demand for any space already set up with a kitchen, as it saves the incoming tenant significant fit-out cost (which can range $5,000–$7,000 per m² for high-end restaurant builds). Consequently, landlords with former food tenancies are often specifically targeting café, takeaway, and restaurant operators in their listings. We also see many adverts highlighting proximity to daytime foot traffic, aiming to attract service businesses (like medical clinics, gyms or beauty salons). Indeed, health, beauty, and fitness retailers have been expanding – agents note a spike in new leases to barbers, hair salons, pilates/yoga studios, and similar personal services. This aligns with the broader consumer trend of locals seeking experiences and services (not just goods) on their high streets.
Traditional specialty retail (apparel, homewares, etc.) is also making a comeback. On strips where rents have moderated, boutique retail shops are reappearing – e.g. Chapel Street saw an influx of independent fashion boutiques as rents became more affordable. Landlords and agents, in turn, are keen to curate a good mix: many leasing listings mention preference for “quality retail” or “boutique traders” to complement existing offerings. That said, hospitality and service uses often outbid pure retailers for space, so they remain dominant in enquiry.
Asking Rents & Deal Terms: Asking rents vary widely by location and shop size. On the top-tier strips (Brighton’s Church St, Armadale’s High St, etc.), advertised rents for prime smaller shops can exceed $1,000/m²/yr and in some cases approach $1,500–$2,000/m². These strips have long queues of prospective tenants and very limited supply, justifying high ask rents. By contrast, on a secondary strip or section (e.g. mid-Bridge Road or parts of Sydney Road), asking rents might be as low as a few hundred dollars per m² – e.g. $300–$500/m² as observed on Bridge Road after its downturn. It’s common now for listings to advertise negotiable terms. Landlords, having learned from the COVID shock, are more flexible: many will entertain shorter initial lease terms (even 1–2 year leases or pop-ups) or generous incentives (months of rent-free, fit-out contributions) to secure good tenants. The current climate has landlords and tenants far more aligned on rent expectations, per agents’ observations. Overall, rents are generally at a market-clearing level where tenants feel they can trade profitably, which bodes well for retention.
Time to Lease & Re-leasing Cycle: While precise metrics are not published, anecdotal evidence suggests the average time to re-let vacant premises has shortened considerably in the past two years. During the 2020–21 peak vacancy period, some shops sat vacant for 12+ months with multiple failed leasing attempts. Now, with tenant demand back, well-located spaces can lease in a matter of weeks to a few months. For example, Fitzroys noted that in just one month they secured three new retail tenants for vacancies in Fitzroy (Smith St/Johnston St) due to surging enquiry, illustrating the velocity in high-demand strips. High churn (turnover) actually facilitates faster re-leasing: Plan1’s data showed 15% churn in 2023, double the long-term average, meaning lots of move-outs and move-ins. This churn rate implies many tenants are rotating, but crucially the spaces aren’t staying empty – new operators are stepping in quickly. We can infer that for desirable strip locations, the listing-to-lease timeline is relatively short now (often under 3 months). However, for larger or less conventional spaces the leasing time can still be longer, as finding the right tenant (or doing a repositioning) takes time.
In summary, the current leasing market on Melbourne’s strips is dynamic and landlord-favorable in terms of low vacancy, but also tenant-favorable in terms of deal flexibility. New lease listings are getting strong interest, particularly from food and personal service businesses. Landlords are pragmatically adjusting terms to convert enquiry into signed leases. This has resulted in a virtuous cycle: quick take-up of vacancies, which boosts strip activation, in turn attracting more tenant interest.
5. Tenant Turnover and Defaults
Turnover (Churn): The pandemic and its aftermath have seen an unusually high turnover of strip tenants. Even as vacancies shrink, many strips are experiencing rapid churn of businesses. According to Plan1’s research, the tenant churn rate on Melbourne strips in 2023 was about 15%, roughly double the historic average (~7.4% per year). In practical terms, this means that in a given year a significant number of shops change hands (one tenant leaves and another arrives). Notably, some high-profile strips had even higher churn: Chapel Street, Burke Road Camberwell, and Acland Street each saw >18% churn in 2023. This elevated turnover reflects the shake-up in the retail landscape – weaker operators have exited (or relocated online) and new concepts have backfilled the spaces. While churn can signal instability, in the current context it also underscores a healthy re-leasing environment: spaces are not going dark indefinitely; instead there is a brisk replacement of tenants.
Investors typically watch churn as an indicator of income reliability. The current high churn suggests shorter average tenure for tenants and potentially more leasing downtime over an asset’s life. However, given that overall vacancies are low, the implication is that although more businesses are rotating through, vacancies are being filled quickly. This can be interpreted as the market finding its equilibrium – marginal businesses close, but new ones (often better suited to local demand) open up. In fact, much of the churn has been strategic “re-tenanting”: e.g. more resilient categories like food and health replacing legacy apparel shops. Thus, one could argue the turnover is improving the quality of occupancy on strips.
Defaults and Business Failures: Precise data on lease defaults (e.g. tenants breaking leases or going into administration) are not publicly compiled, but several trends are notable:
- During 2020–21, many retailers went through insolvency or restructuring, contributing to the initial vacancies. For example, a number of fashion chains (both local and international) shut stores on Chapel Street and elsewhere. Government support (like JobKeeper and mandatory rent relief) helped prevent an avalanche of formal defaults, but nonetheless numerous small hospitality operators and boutiques did cease trading.
- In the current phase (2022–2025), default rates appear lower. The tenants now in place are often those who managed to weather the pandemic or opportunistic new entrants with lower rent bases. Landlords have also been careful in tenant selection (preferring experienced operators or those with strong concepts). As a result, we haven’t seen many major retail collapses in 2023 on these strips. However, the cost-of-living pressures and high inflation have squeezed margins, especially for food businesses (which face rising input and labor costs). There is anecdotal evidence of some recent hospitality closures as discretionary spending tightens, but these tend to be quickly replaced by other concepts, as demand for space is high.
- The risk of default varies by strip segment. Strips with a high proportion of start-up businesses (e.g. some inner-north areas with experimental bars or shops) might see more short-lived ventures (i.e. a pop-up that doesn’t convert to long-term). Meanwhile, strips anchored by supermarkets and essentials tend to have more stable anchor tenants (supermarkets themselves, banks, etc., which have long leases and almost zero default risk). For instance, a neighbourhood strip with a Coles plus supporting shops is underpinned by the supermarket’s secure rent – smaller tenant churn around it, while present, doesn’t threaten the core income. This stability factor is a key reason investors prize supermarket-anchored strips and neighbourhood centres.
In summary, tenant turnover is high but not necessarily a negative in the current context – it indicates the strips are actively regenerating their tenant mix. Most new leases are getting filled without excessive vacancy periods, indicating defaults (when they happen) are being quickly resolved through re-leasing. Investors should, however, underwrite slightly higher leasing and incentive costs in this environment of elevated churn. The expectation is that churn will normalize back toward historical levels once the post-COVID realignment of retail is complete and economic conditions steady.
6. Investment Yields and Capital Values
Current Yields: Investor demand for well-located Melbourne strip retail assets remains robust, though rising interest rates have put some upward pressure on yields in the past 1–2 years. As of early 2025, prime supermarket-anchored strip properties are generally trading on net yields in the low- to mid-4% range, and truly trophy assets even lower. According to Fitzroys, the broader market has been “realigning” to yields closer to 4% on average, whereas during the ultra-low rate era some strips saw yields in the 3% range. We are indeed still seeing exceptionally sharp yields (~3% or below) for blue-chip strip assets: for example, a fully-leased double-frontage property on Toorak Road, South Yarra recently sold on an incredibly low 1.8% net yield – likely reflecting future development potential and the strength of that location. Similarly, several sales on Toorak Rd/Chapel St in late 2023 achieved 2.9–3.2% yields, showing that cashed-up investors (often family offices or offshore buyers) are still willing to accept very low yields for AAA positions. However, these are outliers. Market commentary suggests that after the November 2023 interest rate hike, many buyers have recalibrated, and yields have expanded by roughly 25–50 basis points from their 2021 lows. In practical terms, a prime strip shop that might have sold on a 3.5% yield in 2019 might sell closer to 4.0%–4.5% today, to account for higher debt costs and alternative investment returns. Secondary strip assets (e.g. with shorter leases or in less proven strips) trade at higher yields – often 5–6%+ – reflecting the greater leasing risk and the need to attract buyers in a more risk-aware climate.
Yield Trend (10-Year): The past decade saw a significant yield compression from 2012–2017, as interest rates fell and investor appetite for retail property grew. By the late 2010s, Melbourne strip retail yields hit record lows: many prime assets were in the 3–4% range and even suburban strips routinely sold at 4–5% yields, whereas earlier in the decade 5–6%+ was common. This compression drove capital values up dramatically in the mid-2010s. For example, small freeholds that sold for ~$1 million in 2012 were selling for $1.5–$2 million just a few years later purely due to yield shift (with rent sometimes unchanged). The pandemic initially froze transaction activity, but values did not crash – low interest rates and rent supports kept asset prices relatively firm through 2020. Come 2021, there was actually a mini-boom in neighbourhood retail investments: with investors prioritizing secure income, assets like supermarket-anchored strips or small centres became hot property. Yields in that period compressed further (some neighbourhood supermarket assets went sub-4% yield as they were seen as “COVID-proof”).
The turning point came in 2022–2023 as inflation and rising interest rates took hold. Yields softened modestly (0.25–0.75 percentage points) across retail sub-sectors during this time. The higher cost of capital meant buyers were no longer willing to pay yesterday’s peak prices unless the asset was truly premium. By late 2023, most strip retail yields had drifted up, and agents reported many investors now “stacking up” purchases against safer alternatives (like bonds or bank deposits), thus requiring a bit more return to justify buying. Still, the weight of money for quality property kept a floor under values. Prime strips with long lease tenants continue to see competitive bidding. It’s telling that even with rate rises, high-street retail in top locations defied negative sentiment and saw strong sales – Fitzroys noted that in the final quarter of 2023, high-profile strip assets continued to achieve strong results, effectively “defying” the broader slowdown. This is attributed to the scarcity of these assets and confidence in the strips’ long-term fundamentals (local spending, redevelopment potential, etc.).
Capital Values: With yields and rents as discussed, capital values (price per square metre) vary widely by strip quality:
- In absolute terms, capital values are highest in blue-chip strips like South Yarra, Armadale, Brighton. It’s not uncommon to see $15,000–$25,000 per m² of building area paid for a prime retail freehold in these areas. For instance, the sale of 109-111 Toorak Road, South Yarra at ~$6.23 million for a relatively small building equated to well over $20k/m² and a sub-3.5% yield. And the record 1.8% yield sale implies a valuation metric even higher (essentially land value driven). These lofty values reflect investor willingness to bank on capital growth (through rental uplift or redevelopment) in irreplaceable locations.
- Middle-tier strips (e.g. Glenferrie Hawthorn, Camberwell, etc.) see values in the mid-range, perhaps $8,000–$12,000 per m² for a typical shop, depending on lease profile. Yields here might be ~4–5%, and rents moderate, leading to those value rates.
- Strips with challenges (Bridge Rd, Acland St) trade at a discount. Capital values there might be in the $5,000–$8,000 per m² range (or even land value basis if buildings are older), corresponding to higher yields. Investors in these strips often factor in significant leasing risk and possibly plan value-add strategies (repurposing vacant space, or waiting for area gentrification).
The trend for capital values over ten years is a rise, then slight dip/plateau recently. From 2013 to 2019, values of strip shops rose markedly (driven by yield compression, as rents were flat or falling in many cases). A Chapel Street shop, for example, might have sold for ~$10,000/m² in 2013 and $15,000/m² in 2018 despite worse rental conditions, simply because yields went from ~6% to ~4%. Currently, with yields easing, there’s mild downward pressure on values. Estimates suggest a 50 bps yield rise (e.g. 3.5% to 4.0%) equates to roughly a 12–15% drop in capital value if rent is unchanged. Some of that has occurred between 2021 and 2023. However, rental growth and high demand for prime assets have offset this for the best strips. Thus, capital values in premium strips have largely held firm or even notched new highs (as evidenced by record-low yield sales in late 2022/early 2023). In secondary strips, values are off their peaks – an investor will now pay less for the same rent roll than they would have at the 2019 peak, due to the higher yield requirement. But crucially, there is liquidity: properties are still changing hands, indicating confidence that these retail strips have a positive outlook.
Investor Sentiment: Overall, the investment market views Melbourne’s strip retail as in a state of renewal and stability. The combination of low vacancies, returning rental growth (in select locations), and “village economy” resilience has made many investors optimistic about income security. Fitzroys notes that strips are experiencing a “period of renewal” with more time spent locally by consumers, supporting trade. Investors – including local private buyers and some institutional players – are often long-term holders when it comes to strip assets, with a 20- to 30-year horizon. This means short-term cycles (interest rate fluctuations, etc.) may not deter them if the asset is fundamentally sound. Indeed, despite interest rates being at their highest in a decade, demand remains strong for high-quality strip assets, and many buyers are simply adjusting finance or expectations rather than exiting the market. One new factor to watch is the Victorian Government’s shift from upfront stamp duty to an annual property tax for commercial properties (phasing in from 2024) – this could slightly alter investment calculations (holding costs), but the consensus is that prime strip properties will continue to attract buyers given their unique advantages.
Yields & Supermarket-Anchors: It’s worth highlighting the role of supermarket anchors in yields and values. Assets with a Coles or Woolworths as a tenant (or adjacent anchor) are often priced aggressively (low yields) due to the secure, long-term income that a supermarket provides. Investors place a premium on this security. Market evidence shows neighbourhood centres with major supermarkets are among the most sought-after, often transacting at tighter yields than discretionary retail properties. The same logic extends to strips: a strip property immediately next to a busy Coles will have a defensive cash flow (thanks to consistent footfall and a likely corporate lease), and thus investors accept lower yields for it. In contrast, a property on a strip with no anchor or with only short-term local tenants will be priced with more caution (higher yield). Therefore, the supermarket-anchored strips near the CBD (like those discussed above) tend to enjoy stronger valuations and more competition from buyers. Capital values on these strips have generally trended up, especially as they demonstrate high occupancy and robust trade post-COVID.
Conclusion & Outlook
Summary: Melbourne’s inner suburban retail strips have undergone a turbulent decade: rising vacancies and rent stagnation in the mid-2010s, a sharp pandemic shock, and now an impressive recovery driven by local community patronage. In 2025, the vacancy rates on strips within 10km of the CBD are at or near ten-year lows (averaging just ~6–7%, versus double digits at the peak). Rents, which in many cases had deflated, have largely stabilized and are inching upward in prime locales – though they remain well below unsustainable pre-2015 levels in most strips, which ironically is helping attract diverse new tenants. Each strip tells a different story: Chapel Street is rebounding on the back of residential development and adjusted rents; Bridge Road is reinventing itself slowly after a long decline; Glenferrie Road and High Street Armadale are near full occupancy, leveraging affluent catchments; Sydney Road and inner-north strips thrive on their eclectic, experience-based appeal; while a few like Acland St still grapple with structural issues.
Leasing activity is solid – there is broad tenant demand (especially from food and personal services) to fill vacancies, and landlords are striking deals more readily than before. The average time to re-let space has shortened, and even though tenant turnover is elevated, it reflects an ongoing positive churn that is rejuvenating the strips’ offerings. Investment metrics remain healthy: yields have risen off historic lows but are in line with a sustainable market (circa 4–5% for most, tighter for premium assets). Capital values for prime strip real estate are at high levels (supported by rent growth potential and high replacement cost for well-located land), whereas secondary assets have seen some value softening.
Outlook: The outlook for these retail strips is cautiously optimistic. Local population growth (Melbourne’s population rose ~3.3% last year), the return of immigration and students, and a continued work-from-home prevalence all bode well for strip retail spending. Challenges do exist – consumer spending is under pressure from inflation and interest rates, which could test marginal retailers in 2024. We may see the elevated churn continue as some businesses struggle with higher operating costs (notably, hospitality margins are slimmer due to higher wages and utilities). Nonetheless, the fundamentals of strips anchored by supermarkets and a rich mix of services are strong. These strips serve essential daily needs and provide the social “third places” that communities value. This intrinsic utility should keep occupancy high. Investors are likely to remain active in the sector, especially if interest rates stabilize or fall – which could even trigger another round of yield compression for prime assets.
For professional investors, the key takeaways are: focus on strips with sustainable rent profiles and resilient tenant mixes; leverage the low vacancy environment but be mindful of shorter lease terms and turnover; and note that supermarket-anchored strips offer particularly defensive characteristics, as evidenced by their performance and investor demand. Yields are currently a bit softer than recent lows, creating a window where acquisition pricing may be more attractive than a couple of years ago – yet the long-term capital growth story for well-located strip freeholds (land value in inner Melbourne, plus improving rents) remains intact. In essence, Melbourne’s strip shopping centres are entering 2025 in a position of strength unseen in years, having adapted to new retail realities and benefited from a renaissance in local living. The coming decade should see these strips continue evolving into vibrant mixed-use lifestyle precincts, rewarding investors who understand their local nuances and long-term potential.
Sources: Recent data and insights have been drawn from industry analyses including Fitzroys “Walk the Strip” 2023–24 reports, Property Council/Knight Frank research, Plan1 Advisors (via Australian Property Journal), Real Estate Institute of Victoria commentary, and commercial agency market updates (Fitzroys, CBRE, JLL, etc.). All data points are supported by the cited publications for accuracy and context. The analysis combines these sources to provide an integrated view suitable for investors’ strategic decision-making.