Suburban strips continue to trump pandemic-hit CBD

Shopping and hospitality strips in Adelaide’s suburbs are thriving with record low retail vacancy rates as the CBD continues to suffer through density restrictions and work from home orders that look set to further widen the gulf in early 2022.

Jan 12, 2022, updated Jan 12, 2022
Jetty Road (pictured March 2020) has rebounded strongly from the pandemic with a retail vacancy rate of just 4.7 per cent (AAP Image/David Mariuz)

Jetty Road (pictured March 2020) has rebounded strongly from the pandemic with a retail vacancy rate of just 4.7 per cent (AAP Image/David Mariuz)

Real estate firm JLL’s latest Adelaide Retail High Street Overview released last week shows low occupancy rates for retail space continue to hit Adelaide’s city centre disproportionality.

The trend is most noticeable on Hindley Street which, in the six months to the end of September, recorded the largest vacancy rate increase across the high streets – growing from 13.8 per cent to 17.3 per cent.

That’s nearly eight percentage points higher than the average high street vacancy rate across both the suburbs and CBD, which stands at 9.4 per cent according to JLL.

The poor result in the city is in stark contrast with suburban strips, which continue to thrive. Glenelg’s Jetty Road precinct dropped to below 5 per cent while less than 7 per cent of retail tenancies on The Parade were vacant in Q3.

The commercial real estate firm said the majority of lost retail and hospitality venues on Hindley Street came on the western end and highlighted the notable closures of nightclub Lux Adelaide and Empire Shisha Bar.

The troubles in the CBD’s west end are reflected in the east, with Rundle Street’s vacancy rate climbing from 11.5 to 13.7 per cent in the third quarter of 2021.

JLL said it’s the highest vacancy rate recorded on Rundle Street since they began measuring high street vacancies in 2015, although the firm maintained a positive outlook for the strip given its proximity to Lot Fourteen and a raft of new residential developments and the recently completed Crowne Plaza Hotel.

The data was recorded South Australia’s current Omicron outbreak and the State Government’s implementation of a wide-ranging work from home policy which has seen many CBD-based public servants sent home and private sector employees encouraged to do the same.

It was also collated before tighter density restrictions hit the state’s hospitality and fitness-based business sector, prompting the State Government to release its seventh financial support package during the pandemic.

JLL research director Rick Warner said January’s restrictions would add to the pain for businesses in the CBD.

“The immediate impacts of more white-collar workers staying at home during this early Omicron period will be the increased hardship felt by CBD retailers,” he said.

“Retailers along Rundle and Hindley have had the worst of it over the last couple of years, as evidenced by our vacancy data.”

In contrast to the CBD, the suburban high streets continue to drive ahead.

The gulf in average vacancy rates between the suburban and CBD high streets increased by more than three percentage points from JLL’s first quarter report in 2021.

Jetty Road Glenelg recorded its lowest-ever vacancy rate at 4.7 per cent, a decrease of 3.2 percentage points over six months, with the beachside shopping strip remaining “one of the most attractive areas for fashion retailers”, JLL said.

“Fashion accounts for 23 per cent of Jetty Road’s total tenancy mix second only to Rundle Street (27 per cent) amongst Adelaide’s retail high streets,” the high street report states.

Elsewhere, retailer demand continued to improve along The Parade in Norwood.

The eastern suburbs strip recorded a vacancy rate decrease of 1.1 per cent to 6.4 per cent in last year’s third quarter – sharply down from its 14.7 per cent vacancy rate reported at the tail end of 2020.

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“The Parade has benefitted from an increase in immediate population due to the completion of new high-density apartment developments along the strip,” the report states.

“Looking forward, additional major residential developments like Norwood Green and Como (at the Coles Norwood site) currently under construction, will support ongoing consumer catchment growth for retailers over the short term.”

The State Government’s work from home advice will provide a further boost to suburban retailers, Warner says, although it’s unlikely to prompt a surge in tenant demand.

“Occupier demand in the commercial real estate space, particularly in retail, is a bit of a slow-moving beast, so it’s unlikely that the SA Government work from home advice will underpin a surge of tenant activity in the suburban areas,” he said.

“It will be a positive for local cafes and discretionary retailers, but density restrictions currently in place within the hospitality sector is not something easily overcome for small business operators.”

Inner-city O’Connell Street in North Adelaide was the only suburban strip to record a vacancy rate above 10 per cent (12.5 per cent), although JLL has a positive outlook for the area as planning continues on the mixed-use 88 O’Connell Street development.

Warner said JLL’s positive outlook extended to the CBD high streets where a recovery “may happen this year”.

“Current Omicron restrictions aside, when you zoom out and look at what’s happening in Adelaide, with the Defence, Tech and Aerospace industries gathering some significant clustering momentum, there’s going to be an increase in white-collar people back into the city at some point,” he said.

Warner said 87,600 square metres of “prime grade office space” is currently under construction in the CBD with a further 75,000 square metres set to commence over the next 12 months.

The new office space will equate to 11.5 per cent of the total stock in the CBD, according to Warner.

“We’ve got announcements every month from major global tech and aerospace companies setting up shop or expanding operations. So, whether hybrid work arrangements become the norm, or we revert back to office working in the future, the city is going to maintain its position as the strongest weekday population density during the day,” he said.

“What we’ll be paying close attention to in 2022 is whether the daily retail spend extends beyond the 9-to-5.

“The night-time economy is crucial to CBD retail outside of Rundle Mall. Not just Rundle and Hindley, but important restaurant and hospitality precincts like Gouger, Waymouth, Pirie, and the laneways.”

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