Shopping strips are facing increasing challenges, and not just because of retail competition. While there is still a lingering Covid shadow on some shopping strips, including those in capital city central business districts (CBDs), other factors are impacting the viability of suburban retail precincts. The slump in consumer spending as inflationary cost-of-living pressures bite into household budgets is an immediate challenge. Bank data and reports from the Australian Bureau of Statistics indica
icate a more severe impact on smaller businesses from consumer spending cutbacks — and many small retailers are located in strip centres.
However, there are longer-term factors changing the fabric of strip centres. These include high property taxes, a reduction of parking spaces, the closure of customer-generating banks and post offices, vandalism and anti-social behaviour as well as, increasingly, a less diverse retail business mix.
Changing tenancy mix
The most recent surveys of the prime shopping strips in March and May 2023 indicated a significant improvement in occupancy rates, primarily driven by an increase in food and beverage outlets. The reports also indicated a significant churn rate in businesses, a trend likely to continue with the current economic conditions, at a time when operating costs are rising and credit tightens.
The fall in retail vacancy levels from late 2022 and March of this year, after the Covid lockdowns were lifted, are likely to creep up again in the prevailing economic conditions, and vacancy rates in CBD retail precincts continue to be impacted by low office occupancy.
CBDs and prime strip centres surveyed by property agents are increasingly weighted towards takeaway food and hospitality businesses, as fashion shops and other specialty retail shrink as a percentage of shopfronts. While the entertainment and hospitality venues in the CBD and some of the prime strips are trading solidly on weekends, the less celebrated suburban strip centres are struggling.
Meanwhile, the boost that was expected in the suburbs from the working-from-home trend has not materialised, in part, no doubt because of belt-tightening, but also the limited attraction they offer as retail precincts.
As with the prime centres, there are hospitality businesses, but their operating hours are usually skewed towards lunch through to night-time trading.
The combined effect of the food and hospitality outlets and low foot traffic generating service businesses has reduced the retail buzz of most of the centres, creating a noticeable decline in customer numbers in core trading hours.
Granted there has been a long-term decline for most strip shopping centres from a traditional retail viewpoint, but the rate of change has accelerated in recent years. The rejuvenation and expansion of shopping malls, big box retail centres, freestanding supermarket neighbourhood centres and online retailing have all had a direct impact on retail strip centres.
The specialty chains in the managed centres with their disciplined tenancy mix, marketing, parking and amenities has proved to be the death knell of many of the independent retailers situated in strip centres.
However, other factors have also been crucial to the declining number of traditional retailers in shopping strips as retail precincts.
The most obvious issue has been occupancy costs, which have soared on the back of increasing land tax, municipal rates and other government charges. Market rents have become unsustainable for many specialty retailers who are also juggling inventory costs and higher utility charges as well as rising staff wages and other costs.
Fragmented ownership
Perhaps more critical to the viability of retailers in strip shopping centres, however, is the fragmented ownership of the premises. Property owners have different expectations for their investments and are invariably motivated by their own financial objectives rather than what might be best for the overall centre.
Property owners are reluctant to allow retailers to create distinctive shopfronts and are not always prepared to invest in maintenance or refurbishments. The result of the fragmented ownership is little effective tenancy mix planning by owners or their managing agents, but also a lack of attractive storefronts.
Other than in older established inner-urban retail precincts, strip centres have the bland and ubiquitous straight-line windows in aluminium frames, often blanked out by service businesses and offices. Retail shops have little or no personality or brand identity and the shopping strips lack character and any compelling reason for a visit.
State governments and local governments have attempted to revitalise strip centres with limited success through beautification works, centre managers and promotional events. Their efforts have worked better for the food and hospitality businesses, but have done little for other retailers.
Amenity improvements and beautification works in strip centres themselves are not a ‘complete and forget’ exercise and require ongoing maintenance and upgrades which seldom occur. Moreover, the public space works are not matched by store upgrades by retailers and their landlords.
Some of the public space works themselves can have adverse impacts on trading, particularly works that reduce car parking and accessibility or create unsafe conditions. Increasingly, levels of graffiti, vandalism and anti-social behaviour, exacerbated by empty premises and poor lighting, are also deterring customers.
Centres can evolve and adapt to changing economic conditions, competition and consumer expectations, but they need active intervention to revitalise them and underpin their economic viability.
Retail strip centres need more commitment and co-operation by retailers through chambers of commerce, more active involvement of landlords and more effective policies and better targeted investment by state and local governments.