![Melbourne's Block Arcade: Many of the city's other arcades are suffering high vacancy rates as a result of not being ...](/content/dam/images/g/t/y/m/j/v/image.related.afrArticleLead.620x350.gwg0v7.png/1496130680906.jpg)
Melbourne's famed shopping arcades are straining under the growth of online retail, with vacancies soaring to a ten-year high.
In contrast with the city's shopping centres, which have pushed their vacancy rate below 1 per cent for the first time ever, arcades such as Centreway Arcade, Tivoli Arcade and Mid City Arcade have suffered a rise as custom for fashion and giftwares – their traditional core – has been sucked online, Knight Frank's latest CBD retail survey shows.
Some arcades, such as the well-known Block Arcade, have stood their ground by focussing on luring retailers with a unique offering, such as the tea-and-cake-institution Hopetoun Tea Rooms.
But the overall decline that has hit arcades and pushed their average vacancy rate up to 4.95 per cent from 0.74 per cent five years ago shows they have largely been unable to respond to changing retail patterns as well as shopping centres have.
The struggle facing arcades echoes the loss of business felt by the city's once-bustling suburban retail strips.
"They will have to reinvent themselves for sure," Knight Frank retail leasing director Gary Loo told The Australian Financial Review. "But it's also about supply. From a leasing point of view, the pool of prospective tenants from the fashion sector is getting quite small.
"It's been evolving in the last four to five years, with the onset of competition from online, combined with the fact people have lower discretionary spending – they're putting more into mortgages."
Disruption to traditional retail from ecommerce is hardly new. US giant Amazon's imminent arrival in Australia is casting a cloud over the future of listed mall owners Westfield Corp, Scentre Group and Vicinity Centres.
But malls with one owner are better able to respond to changing circumstances by curating their mix of tenants. Over the same five-year period, the city's shopping malls cut their vacancy rate to 0.95 per cent from more than 3 per cent, in part by focussing more on the need for food and beverage offerings as the population of the inner city has grown.
Earlier this month, chef Guy Grossi leased a 160 square metre retail space on Flinders Lane that will serve as the flagship premises for his eatery.
For arcades, however, having different owners hinders their ability to respond.
"They have different landlords who don't really care much about tenancy," Mr Loo said. "It's more of getting their premises let, rather than looking at the big picture."