13 October 2026
5 min read
Published by:
Melbourne’s retail landscape is shifting towards larger, flagship-style spaces. After a decade of dwindling foot traffic driven by e-commerce growth and the effects of COVID-19, brands and landlords are once again investing in physical retail, recognising the commercial outcomes that well-executed stores can achieve.
Speciality retailers are increasingly committing to larger, interim-to-flagship leasing arrangements tied to major centre redevelopments. A great example is Kinokuniya, the Japanese bookstore chain founded in Tokyo in 1927, which has recently opened its doors in a prominent Melbourne CBD shopping centre as part of the centre’s multimillion-dollar expansion, ahead of opening its larger flagship store in 2028. The chain last opened an Australian store in Sydney in 2002. Almost 25 years later, Melbourne is getting its own.
Experience-driven retail is increasingly favoured by landlords because it encourages customers to stay longer, increases foot traffic and provides the kind of experience that e-commerce cannot replicate.
With stores across Japan, the United States, Singapore, Malaysia and beyond, Kinokuniya is known for its spacious layout and vast collection of Japanese, Chinese and English titles, including manga, stationery and gifts. The browsing experience rewards time spent in-store rather than a quick transaction – a retail experience a small bookstore cannot easily replicate, but a large, well-located flagship store can.
As shopping centres increasingly pursue experience-driven retail strategies, interim-to-flagship leasing arrangements are becoming a valuable tool for retaining key retailers during major redevelopments. The Retail Leases Act 2003 (Vic) (RLA) contains several provisions that can help landlords manage these arrangements and reduce leasing risk.
Interim store to flagship premises
As landlords favour retailers that attract customers and enhance the overall centre experience, they may offer retailers an interim store while redevelopment works are underway. The retailer then moves into its larger flagship premises once those works are complete.
This allows landlords to retain an attractive tenant throughout the redevelopment period without losing that tenant to a competing centre. Conversely, the tenant is incentivised to remain if it feels accommodated for.
Options and notice
Where a tenant’s lease includes an option to renew, section 28(1A) of the RLA requires the landlord to give that tenant written notice at least three months before the option lapses.
The written notice must set out:
If the landlord misses that three-month deadline, the lease continues on its existing terms until three months after the landlord eventually gives notice.
A late notice could leave the tenant locked into the interim store on existing terms when the flagship premises are ready and could potentially give rise to a termination right for the tenant under section 28(2)(c) of the RLA, increasing the risk of losing the tenant to a competing centre. When given on time, the notice regime acts as the landlord’s tool for managing the tenant's transition into its flagship premises.
Rent reviews
If a lease provides for rent review on the basis of current market rent, section 37(2) of the RLA provides that “the current market rent is taken to be the rent obtainable at the time of the review in a free and open market between a willing landlord and willing tenant in an arm’s length transaction.”
The current market rent is not to take into account any value of goodwill that may have been created by the tenant’s occupation or the value of its fixtures and fittings. This mechanism protects the landlord from undervaluation and ensures that the rent accurately captures the premises’ market value irrespective of the tenant’s commercial success (e.g. any goodwill built up by the tenant’s presence in the centre).
If the parties cannot agree, a specialist retail valuer may be engaged to determine the rent. The valuer can be appointed jointly, or failing agreement, by the Victorian Small Business Commission under section 37(3) of the RLA. This ensures that the rent will not stall at an outdated figure simply because the parties cannot agree on a figure.
Repair obligations
Section 52 of the RLA requires a landlord to maintain the structure, fixtures, appliances relating to gas, electricity and water, as well as any plant and equipment at the premises, to a standard consistent with the premises’ condition at the lease commencement. The obligation is therefore to maintain the interim store to the standard when the tenant first took occupation, not the condition of the future flagship premises.
However, section 52(3) provides that a landlord is not responsible for maintaining those items if the need for repair arises from the tenant’s misuse or where the tenant is entitled or required to remove the items at the end of the lease.
In practice, this means the landlord does not bear the cost of repairing damage caused by the tenant, nor is it responsible for maintaining tenant-specific fit-outs that will be removed when the tenant vacates. For a landlord planning to re-let the interim store once the tenant moves into its flagship premises, these exceptions help contain handover costs.
Melbourne’s retail landscape is shifting towards larger, experience-driven destinations, and with that shift comes a new generation of interim-to-flagship leasing arrangements tied to major centre redevelopments.
For landlords, the opportunity is significant: secure an attractive retailer for the long term, retain them through the redevelopment period and deliver a flagship tenancy that benefits the centre.
The RLA gives landlords the tools to manage these arrangements without giving up control of the process. Timely management of the tenant’s option to renew ensures a smooth transition without giving rise to a termination right. A market rent review mechanism that excludes goodwill protects against undervaluation. Repair obligations, pegged to the condition of the interim store at commencement, contain handover costs when the tenant vacates.
Together, these provisions allow landlords to accommodate an attractive retailer through a staged transition while retaining control of the timeline and the redevelopment.
This article was originally published in Shopping Centre News. If you have any questions about tenant leases, please get in touch with us here.
Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
Published by:
