Bayleys Research’s Auckland retail market update shows an uptick in vacancy across established retail precincts, bold new retail property offerings finding their feet, dwindling foot traffic in the CBD causing uncertainty and the growing success of the large format retail sector both as an asset class and preferred retail destination.
Chris Beasleigh, Bayleys national director retail sales and leasing, said it’s not a one-size-fits-all situation in the retail space as Auckland wrestles with the ramifications of COVID-19’s long tail against a backdrop of changing consumer habits and infrastructural challenges.
“In talking with our Auckland region retail landlords and occupiers, the playing field is far from level with sentiment and confidence waxing and waning according to geographic location and business type,” he said.
“It’s been rough going for many – particularly those businesses heavily-dependent on international visitors and students, and those reliant on fully-occupied office towers in Auckland’s core, as a work-from-home ethos continues to encourage employees away from central workplaces.”
The average wage for a retail worker is now $25.05 an hour according to Retail NZ’s annual wages guide and, when coupled with escalating freight costs and ongoing global supply chain woes, it’s changed the base fundamentals for occupiers – and landlords.
“It’s a jungle out there, frankly, and the pressures on Auckland CBD businesses in particular is immense.
“There’s been much talk about the demise of Queen Street off the back of major pedestrian and vehicular disruptions from city rail link work, and unpopular council initiatives that limit movement along the once-prime strip.
“After the main lockdown decimated foot traffic, business association Heart of the City research found an overall drop in the average number of pedestrians on Queen Street of around 30 percent since mid-2018.”
Retail vacancy rates across the Auckland region now average 8 percent, twice that recorded in 2019. Central Auckland has reached 9.44 percent vacancy, largely reflecting the challenges that Queen Street has grappled with, sitting just behind South Auckland, where retail vacancy hit 10 percent – the highest recorded since Bayleys Research started tracking retail vacancy in 2002.
“The North Shore has done relatively well, with vacancy currently sitting at 4.62 percent and only slightly higher than in 2019, but the new star performer is West Auckland,” said Beasleigh.
“Bucking the regional trend, vacancy levels dropped by 1.6 percent to 6.29 percent and this can be attributed to the high level of bulk retail in the area and consumers preferring to shop in suburban malls closer to home.”
Beasleigh said innovative new retail precincts with points of difference like Commercial Bay – which is trading well despite lower pedestrian counts in the CBD – Westfield Newmarket on the city fringe and Ormiston Town Centre in south-east Auckland, show there is still an appetite for shopping centres as an asset class.
“The success of these destination precincts has come at the expense of strip retail, but that’s a dynamic that needs to find a new settling point and it’s yet to be seen what further large-scale retail development will occur in the changed business environment,” said Beasleigh.
“In the year to March 2021, there were more than $137 million and $120 million of new and refurbished retail space consented, respectively.
“This is a marked drop from the development peak in 2019, however, when new and refurbished consents totalled $620 million.”
New retail consents were concentrated in West Auckland, which accounted for 29 percent of all consents and included the Northwest area where the new circa-14,000sqm Costco development is currently under construction with a forecasted completion date in 2022.
The large format retail sector remains counter-cyclical as an asset class, attracting strong investor demand due to location, steady rental rates, established national and international tenants and long leases.
“Large format retail is the only retail asset class in Auckland that decreased in vacancy, reaching a low of 3.75 percent in 2021 and assisted by the fact that occupiers were generally able to trade through the height of the pandemic lockdowns and restrictions,” said Beasleigh.
“Institutional investors have demonstrated confidence in this sector, with Kiwi Property remaining active in Westgate and Sylvia Park, and Oyster Property recently purchasing the Albany Lifestyle Centre as part of their Large Format Retail Fund.
“Bayleys have an established and strong track record transacting large format retail offerings, completing more than half of all deals in the large format sector in New Zealand in 2020.”
This included the sale of a Bunnings store for an Australasian record sub-4 percent yield, and Countdown Orewa selling in August 2020 at a 4.70 percent yield.
Bayleys Research’s Auckland retail market update, which provides data to support themes impacting the sector currently, is available from Bayleys offices across Auckland or online at bayleys.co.nz/research/commercial