Auckland retail market positive overall
JLL Research says improving retail fundamentals along with rising confidence for both retailers and consumers are starting to translate into overall positive movements within the Auckland retail market although rents and vacancy are yet to fully reflect this trend.
The agency’s latest Pulse market report says investment yields for retail assets in Auckland continued to move downward during the first six months of 2014 as investor demand remained strong.
However, overall conditions such as retail sales growth, wage growth and employment remain positive.
“With consumer confidence remaining near seven year highs and robust retail data coming through, we have seen sustained investor interest in retail assets with an anticipation that rents and vacancy trends will improve over the medium term.
“While fewer large retail assets transacted over the first half of 2014, the small to mid-sized market still remains active,” the report says.
Vacancy in the overall Auckland retail market fell below 5 per cent in the first half of this year to 4.7 per cent. This was influenced by occupier demand across the board, but was most pronounced in suburban precincts of the market.
Takapuna vacancy continued to decline in the first six months of 2014.
“While this is above the 10 year average of 3.1 per cent, conditions are on the mend and with areas like the McKenzie project now completely leased, vacancy is now found in generally the secondary and slightly older stock,” JLL Research says.
Several small areas in Parkway and Hurstmere Drive in Takapuna have also been taken into refurbishment.
In Newmarket a new development at 381 Broadway is expected to completed in the second half of this year with an estimated 1300 sq m to be added to the precinct. The 277 Broadway development will likely be put on hold given the recent discussions around Westfield selling their New Zealand portfolio while the visible development of the University of Auckland’s new campus on Khyber Pass Road, combined with development activity that is starting to pick up, indicate that retail market conditions are starting to recuperate in that area.
Bayleys has agreed to take space at 48 Remuera Rd, which is currently being renovated and is expected to be occupied in the third quarter of this year.
Within the Auckland CBD, refurbishment works saw a strong increase in the first half of the year with areas in Queen Street such as the ICBC at 2 Queen St, the former Farmers Site at 230 Queen St and former ANZ space at 203 Queen St being restored and fitted out for incoming tenants. Other areas including The Chancery and 396 Queen St have exited from upgrading and renovation works.
Overall conditions in the prime retail market continue to improve. The international fashion chain Topshop has entered the Auckland market and preparations have begun to fit out its new store at 203 Queen Street which is expected to be completed before the end of this year. Rumours abound that other high end fashion retailers including Mango and and Zara are interested in opening stores within the Auckland market.
Underlying conditions in the Auckland retail market remain positive, with a growing population, consumer confidence at almost decade highs and robust retail sales being seen in the first six months of this year.
The Prime segment of the market continues to lead the way forward in both the CBD and Suburban markets with upper yields falling by 12.5 basis points.
While rental growth has remained relatively mild for this period, the over trend is becoming more positive. Incentives in the CBD market remain low at 4.2 per cent while incentives in the Prime suburban market have fallen from 8.3 per cent to 6.7 per cent. With less than one month of incentives per one year term in both prime markets, property owners are moving into a controlling position and will likely start to push rental levels higher over the next 18 months.
Shopping Centres remain a favourite investment target for institutional owners. Average investment yields firmed to 8.28 per cent over the most recent six months.
“Rumours abound regarding the sale of Westfield’s portfolio of malls and will have a significant impact on centre yield’s going forward, although no details have been released at this time,” JLL Research says.
Improving economic fundamentals and confidence have started to be felt on the ground in the Auckland retail market - filtering down to the confidence of retailers within the region and being reflected by “numbers on the ground”.
“Retail investments continue to remain a favoured option with investors, and we predict that yields will continue to decline for the foreseeable future with a number of large sales expected to be completed in the in the second half of this year,” the Pulse report states.
“The development and refurbishment cycle is starting to increase across the board. While this will generally be focused on big-box and food retailers initially, we have already started to see signs that this is moving into other retail categories and is likely to gain more traction.”
JLL Research recommends that Auckland retail tenants and occupiersmake the most of their landlords’ willingness to negotiate and secure their tenancy terms.
Landlords and owners are advised to position their units to take advantage of the restrictions in future supply and capitalise on the uplift in rents.