Demand for Auckland retail space remains strong, particularly for lower Queen Street and Britomart space, according to the latest JLL report
Auckland Retail Pulse 1st quarter highlights the lack of options available to occupiers has resulted in another period of rental growth, with average prime rents increasing to NZD 2,925psm in 4Q16, up from NZD 2,300psm in 4Q15.
Retail spending increased again year-on-year to the September 2016 Quarter, growing by 5.2 per cent. Strong retail performance and the continued growth of tourist numbers has increased interest from international retailers.
Chanel and Tiffany & Co both opened flagship CBD stores in the latter part of 2016. The lack of suitable-sized retail spaces becoming vacant in high demand CBD locations has blocked entry from further international chains.
One such larger tenancy that did become available was the Dick Smith shop at 191 Queen street, this quickly leased to Footlocker. Because of the lack of options, large floor plate fast fashion outlets Zara and H&M opened their flagship New Zealand stores at the suburban mall Sylvia Park in 2H16.
Newmarket performed strongly again over the back end of 2016, with vacancy decreasing 147bps to 4.9 per cent in 2H16, the strongest result across the suburban retail markets surveyed. One of the largest take-ups in Newmarket was the Design Store leasing close to 900sqm at 17-19 Teed Street.
Total CBD stock now sits at ~134,000sqm, up from ~132,600sqm in 1H16. The increase was driven by refurbishment activity, which included the completion of Australis House and the Nathan Building at 36-42 Customs Street East reintroducing 800sqm of character space.
CBD supply remains outpaced by demand and conditions will remain tight until new supply enters the market with the completion of the laneway style Commercial Bay retail section, delivering 20,000sqm of prime space in 2018.
Rental growth maintained upward momentum, with top end prime CBD rents escalating to NZD 4,100psm in 4Q16, the highest level on record. Limited vacancy in prime CBD retail has ensured a landlord favourable market prevails.
On the back of strong fundamentals prime CBD yields firmed again to an average of 5.9 per cent in 4Q16. The average prime suburban yield firmed to 5.9 per cent as well decreasing from 6.6 per cent year-on-year. Secondary yields underwent similar compression, dropping 66bps year-on-year.
Investors remained active in the wider Auckland retail market with several large properties transacting above the NZ$5 million mark. WestCity transacted in December for NZ$153 million. Located in Henderson and purchased by Angaet Property Group, the WestCity Shopping Centre is the last of Scentre’s NZ portfolio marked for divestment.
Other prominent sales include the Three Kings Shopping Centre for NZD 37 million. In the trade retail sector, Bunnings Takanini transacted for NZ$26.5 million reflecting the strong investor demand for tenanted investment property. Bunnings had taken a 12-year lease over the property with fixed annual rental increases. The property sold on a 5.2 per cent yield.
Demand is forecast to remain strong over 1H17 as retailers continue to benefit from population growth in most main centres, increasing retail spending numbers and a growing number of tourists. Additional projects set to increase the CBD supply over 2017 will primarily include food and beverage space in the lower CBD and Viaduct areas. The retail component of the refurbished 125Q building will add some new flavour to the mid-city area.
Suburban retail is also forecast to grow further in 2017, with Kiwi Property looking to progress plans for a NZ$180 million expansion of its Sylvia Park shopping Centre, in addition to its NZ$80 million office tower which is being constructed at present.
A growing list of international retailers is expected to be entering the New Zealand market over 2017 and a number of newcomers will be looking to expand the beachheads established over 2015 and 2016, JLL concludes.
