Mid-year is a strategic period in the commercial property market for Colliers International’s Research and Consultancy team. It serves as a key barometer on how the market is progressing to date, and more importantly what trends can be identified for the months ahead.
In this article we perform a half-yearly health check on the state of the country’s, and specifically Auckland’s, retail markets.

Retail

New Zealand’s economic strength has lifted the retail sector out of a lacklustre period of consumer spending, but mixed messages keep emerging. Retail is benefitting from record high immigration, strong labour conditions and a rising housing market in a low interest rate environment. However, only select retailers are winning.
Effects from online retailing continue to impact retailers selling substitutable products, especially in regional locations. The Government’s review on GST for online goods may assist in the future. Diverging expectations on upcoming economic and consumer activity means some retailers are in for a reality check.
Upcoming rent rises will quickly separate the underperformers. Investors will be mindful of their tenant choices, but the shortage of favourable stock and a growing pool of investors, will keep demand strong, and yields firm.

Key Findings

• The level of demand for retail space in Auckland CBD, the suburbs and shopping centres symbolise a market on fire.  The region’s 2.4% vacancy rate is the lowest since 2007.
• In Wellington, 2015 is turning into a pivotal moment of change for retail. Rising offshore interest is a major turnaround, boosted by David Jones and Seed Heritage setting up shop. Rumours of Topshop opening have added fuel to the fire. The positivity will spread, leading to rental rises that boost investment activity.
• Christchurch CBD retail is on the cusp of a return to prosperity, enabled by new private sector developments. Adequate car parking and the astute timing of key anchor projects remain the sector’s hurdle- they are both necessary to influence any significant boost in pedestrian count. Outside of the CBD, retail’s footprint has expanded significantly and is flourishing.
• Beyond the main centres, retailers doing best are those in growing catchments well serviced by an increasingly wealthy and growing resident or tourist population. In underperforming CBD retail locations, new office, residential and student developments are heralded as key catalysts to increasing pedestrian counts and driving retail spend up. The continual rise and popularity of suburban convenience centres and large format retailing remain key areas of consideration for retailers, investors and planners for the future.

Auckland

Demand highest since 2007
Auckland region’s 2.4% vacancy rate is the lowest since late 2007. Demand has grown steadily from retailers looking for opportunities to take advantage of the rise in Auckland consumer’s buoyant mood. CBD retail has reduced from 3.0% in late 2014 to 2.5% as at June 2015. City Fringe retail spots are also feeling the positive vibe, with Newmarket, Ponsonby and Parnell recording declining vacancy rates. Suburban retail landlords in areas like Dominion Road from Mt Eden to Mt Roskill, Takapuna and Henderson are all enjoying low vacancy rates. Auckland shopping centres continue their strong run, with less than 1% vacancy out of more than million sqm of space. Statistics New Zealand’s latest retail spending data shows Auckland’s share of retail spend continues to grow, with population growth, house price rises and real wage growth boosting the sector’s outlook. This will keep demand strong.

Overall Outlook

Retailers’ prosperity in the short to medium term will be driven by positive demographic and socio-economic factors that will boost the number of people buying, and the amount they are spending, at their shops.
Not all retailers will be positioned well in this regard, but retailers enjoying a positive mix of these factors will flourish. In the medium-term, retailers can expect consumer spend to be influenced by online shopping, rising fuel prices, an unusually lacklustre dairy sector, a slower economic growth rate and global economic rumblings. The corollary is low inflation, reducing interest rate costs, and strong labour market conditions.
Investors will need to be vigilant in both their selection criteria and understanding of the cyclical and structural changes occurring in the economy and the retail sector. For some, especially the more passive investors, this may be a deterrent to entry or a push to pursue other opportunities. Rents will rise, causing some retailers to exit, but yields will firm further from already low levels.
Battles between the CBD and the suburb, strip versus mall and offline versus online will remain prominent in retail rhetoric. This provides significant opportunities for investors who have a strategy that coincides with a progressive retailer engaging with its customer base.