Following a modern fit-out, the 60 square metre premises at 10 Garden Street were leased to commercial real estate agency Leedwell Property.
While the rent achieved was more aligned to a Chapel Street retail rent of a decade ago, Mr D’Arcy said it was greater than current office rents in the surrounding area.
“Anyone that genuinely understands retail leasing dynamics outside of our CBDs knows that in many, if not most cases, the modern retail leasing deal is just not economically viable. Especially now,” he said.
“What I am offering is something less risky and capital intensive. the conversion of suburban shops into offices.”
The Cucumber business model has been given added credence by the pandemic, which apart from creating a work-from-home culture, has made the idea of a small, ground floor suburban office more attractive than a crowded, city high-rise tower.
Cucumber’s “grow-working” model, as Mr D’Arcy calls it, is targeted at small to medium businesses with up to 25 people or smaller units within large businesses.
The careful fit-out allows a tenant’s headcount to expand by up to 50 per cent, without any change to rents of between $450 and $500 a square metre.
“So in real terms, the rent cost per head gets cheaper if the tenant grows. This is achieved by sweating every square centimetre of space when we design the office.”
While the rent may be lower than a traditional retail tenant, a landlord has a secure long-term tenant paying sustainable rent.
Spurred on by the success of his South Yarra pilot, Mr D’Arcy is working on half a dozen projects on behalf of developers, private landlords and shopping centre owners.
“Right now, we are working with residential developers to solve that ground floor problem in middle-ring suburbs like Brunswick, Moonee Ponds and Kew, as well as with traditional office and retail landlords from the CBD to Frankston in the south-east,” he said.
“We are also working with a major shopping centre landlord to create a small office precinct in their centre,” Mr D’Arcy said.
Among his clients is developer Milieu Property, which is close to finishing an apartment project in Brunswick in Melbourne’s inner north.
Rather than have shops at the base of its Breese Street development – as most developers opt for – the ground floor will be fitted out with Cucumber Offices.
“Coworking has its place, but it’s certainly not the future for all SMEs if you believed the hype a year or two ago,” said Milieu director Shannon Peach.
Ensconced in his company’s swanky South Yarra office, Leedwell Property partner Chris Parry and former head of large format retail property at CBRE, said at least 10 businesses on Chapel Street had closed permanently since the lockdown began,
“It will be important for developers and landlords moving forward to incorporate demands from COVID-19 into their designs to attract key tenants as well as consider alternative uses.”