Small spaces are getting bigger

Small is good for some retailers and office spaces who are coming round to the idea that small is the new black

Rising rents, low vacancy and the seamless integration of brick and mortar shops with e-commerce is driving retails to opt for more boutique style shops.

Even online-only operators are opting for small offices because they have few staff and even outsource much of their required workforce.

I especially noticed it last time I was in Sydney, but apparently, Melbourne is running the same trend.

From the investor point of view being able to split up large spaces into many smaller spaces creates a more stable income, exit strategies and maybe in the future the option of strata.

Carving up spaces to cater for more tenants, will gain you a higher per square metre rate for your property which is much better for your bottom line.

What I noticed is that some retailer are opting for not having all their stock in their shop but rather having their most popular stuff and an in-store portal for viewing other items from their catalogue to help create sales.

It's pretty tricky.

Retailers like luggage creator Crumpler are downsizing for example.

Because they can get away with 70 square metre stores that stock a reduced range, save on rent and do a lot of their sales online.

People seem to be happy to buy online but still want to touch and feel the merchandise… these tiny high-tech stores are helping with this need.

Locations such as George Street in Sydney are now commanding around $6000 per sq m, Pitt Street is around $2500 per sq m. Melbourne's CBD rents range from $3000 up to $10,000 per sq m.

Even some food outlets have moved outsourced food production to cheaper locations, freeing up space normally used for kitchens and storage.

For me, who loves cafes and the like, this means that they can fit more customers in and run a more efficient business.

From my point of view, a happy business is a happy tenant – and that's good for them and me.

I guess because of rising rents in big CBD's some retailers are becoming more adventurous about what sort of space they would use, above and below street level.

There's a clothing retailer ‘Practical Man' that has a 30 square metre shopfront that channels customers into a larger, previously-unused, basement space.

Fashion outlet Zambesi has converted a first-floor Flinders Lane office into a retail showroom.

Buoyant conditions for smaller retailers were having a knock-on effect on the investor market, particularly for sub-$2 million retail spaces.

Melbourne's CBD has seen six “entry-level” transactions priced between $1 and $2 million this year.

For those wanting to invest in CBD type properties this type of transaction price is typical. The advantages are that you will never see a long vacancy, and if your space is big enough then this small space retail model could be the perfect strategy to boost returns.

I believe that this model would probably work in any high traffic retail shopping strip.

Here in sunny Byron Bay one of the things that I'm seeing is that the only people who can afford the rent in the usual shops are the big chains.

The small space model could be a way for local retailers to maintain a presence in this kind of area.

The other advantage is that for example three small spaces would be individually cheaper to rent for the tenants but the cumulative effect of having three rents rather than one would make for a more stable long-term opportunity and potentially (depending on the lease) improve future valuations.

As to whether you can strata-up a small space retail or office set-up, you would have to look at the rules and speak to the council in the area. Some will say yes some may have a problem with it…

It's always worth asking, though. Given the additional value, this would give your property.

The small space movement is not some CBD trend, however. The same thing is happening in residential with the rise of the micro apartment and rooming houses.

The upshot of rising rents is that people are looking for cheaper ways to live (and in our case – run a business) and councils are slowly coming on board thanks to government pushes toward higher density and increased populations.