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Vacant CBD shops challenge traders but better times expected

Business

City traders and property managers are quietly confident that new businesses will emerge in many of the scores of empty shopfronts as the economy bounces back from COVID.

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The most recent Adelaide Retail Market Update from commercial property firm JLL, which found CBD shop vacancies to be at 13.9 per cent in December 2020 – the highest rate recorded in Adelaide since 1993.

The figures align with Adelaide City Council’s latest City & Economic Insights study, released last week, which revealed there are 127 vacant business premises across Adelaide’s key precincts of Rundle Mall and Hindley, Gouger, Rundle, Hutt, Melbourne and O’Connell streets.

The council study also found the average vacancy rate in Adelaide to be 13 per cent as of April this year.

The CBD stands in stark contrast to vacancy rates in South Australia’s regional (3.8 per cent), sub-regional (6.2 per cent) and neighbourhood shopping centres (4.7 per cent), according to the JLL report.

InDaily reported last week that a decline in shopfront numbers at Rundle Mall’s Regent Arcade has frustrated traders in the precinct, who are calling for more investment, advertising and consultation from the arcade’s owners to attract prospective tenants and shoppers.

JLL research director Rick Warner said the number of discretionary (non-essential) retail outlets in the Adelaide CBD – namely fashion retailers and restaurants – made the city especially vulnerable to a COVID-induced decline in shopfronts.

“A lot of these CBD retail businesses operating on thin margins probably didn’t have the safety net capital required to trade through,” Warner said.

“Both of these retail categories (fashion and dining out) had a really tough time during lockdown, so when you add these two factors together – an almost complete removal of day-time trade for an extended period of the year last year, coupled with the CBD’s high exposure to discretionary retailing – it’s tough to maintain occupancy levels in that environment.”

In a national context, JLL’s shop vacancy figures show the Adelaide CBD faring more than four points worse than Melbourne (9.4 per cent) but three points better than Perth (16.9 per cent).

The Adelaide CBD’s four-point increase in retail vacancy since the start of 2020 is also in line with a national average CBD increase of 4.8 per cent.

Despite concerns from property bodies and landowners about a lack of foot traffic in the CBD to stimulate the city’s recovery, Warner said Adelaide would “definitely” bounce back from its shopfront decline.

“Regardless of the risk of a higher proportion of CBD workers working remotely in the future, the CBD will always remain the highest density of day-time trade in South Australia,” he said.

“So, yes, I think CBD retail will be fine. That being said, it doesn’t have to come at the expense of suburban strip retail either.”

According to a Roy Morgan data study published last month, the movement of people within the Adelaide CBD has recovered to 83 per cent of what it was pre-COVID.

The Adelaide CBD also sits third among Australian capital cities for the percentage of workers who have returned to the office – around 70 per cent according to the latest Property Council figures.

One precinct benefiting from the gradual increase in CBD foot traffic is Adelaide Arcade, which hosts more than 50 businesses.

However, manager Andrew Jonats said the heritage-listed shopping mall – which stretches between Rundle Mall and Grenfell Street and neighbours Regent Arcade – is still facing a number of challenges.

“We appear to have hit a bit of a plateau [in foot traffic] I think because until the international borders are open, I think that’ll be the next hit or next catalyst for improvement in regard to tourists and also international students,” Jonats said.

He said the arcade was still “actively managing” all of its tenants, with businesses in the retail and service sector still in need of rent support.

“We’re in constant contact with them, seeing what’s going on and how they’re travelling,” Jonats said.

“And we’re still supporting the tenants in regard to rent relief.”

Jonats did not give specifics on the number of tenants in Adelaide Arcade receiving rent deferrals, but said the extent of the rent relief “depends on the type of tenant”.

“We’re looking at the long-term picture, and we believe strongly that the city will rebound back, and we need to be in a position to take advantage when that happens,” he said.

“So we’re supporting those businesses that may be having some tough times now but we believe that they’ll be back stronger than ever.”

Vacancy rates in the CBD have increased when rent relief periods expire, according to Warner, however, the JLL researcher points out that “vacancy pressure” on landlords has translated into lower asking rents overall for prospective CBD tenants.

This is evidenced by a nearly 4 per cent decline in average gross rents within the Adelaide CBD over the last quarter of 2020.

The numbers give Ian Hill, managing director of the Adelaide Economic Development Agency (AEDA), cause for optimism.

“As the state’s premier retail destination, there remains strong interest from new and existing retailers for tenancies within the entire Rundle Mall precinct,” Hill said.

AEDA was set up this year as a subsidiary body of the Adelaide City Council to deliver programs to attract investment and residential growth in the CBD while promoting Rundle Mall as the city’s leading shopping precinct.

Hill said the onus of attracting investment to Rundle Mall also falls on existing businesses.

“Consumer expectations are changing faster than ever before, so it’s important that retailers respond to their expectations by delivering new and innovative retail and in-store experiences,” he said.

Confidence in a quick post-COVD recovery for the city’s retail precincts is also shared by Renew Adelaide CEO Andrew White.

The Council funded not-for-profit links property owners in the Adelaide CBD with prospective tenants, offering short-term, rent-free commercial leases for vacant spaces.

White said his organisation was currently experiencing a “surge in demand like I can’t really remember”.

“Currently we’ve got a growing expression of interest list of over 200 new businesses looking to bring their concept to the CBD,” White said.

“We’re just really looking at trying to home a lot of these businesses.

“We’re getting a lot of support as well from the property sector broadly, but we’re just … at the limits of our resourcing right now.”

Asked what accounted for the growth in demand, White said: “I think people are just taking stock and looking at after the pandemic”.

“Necessity is the mother of invention sometimes, and they’re just looking at new ways to I guess launch their concepts that they may have been thinking about for a while.”

The percentage of empty shopfronts in Rundle Mall is also less compared to other key shopping precincts in the city.

Hindley and Rundle Street both have a 14 per cent vacancy rate according to the Council’s City Insights report, while Gouger Street (13 per cent) and Hutt Street (12 per cent) are also above Rundle Mall (8 per cent).

Billy Hogarth, who owns a café on the Grenfell Street side of Regent Arcade, said the problem of empty shopfronts is spread across the CBD, but can appear more clustered in dense shopping precincts.

“I think COVID was brutal on everyone, but at the same time I think the arcade copped the brunt of it having so many stores that they had to keep full,” Hogarth said.

“I think there’s just as much empty shop frontage across the city, it just happens that a lot of it is collected here.

“While it looks empty, there’s actually so much going on and I think it’s only a matter of time that we bounce back and people start putting up shops again.”

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