Sweet taste of success

2:40 PM Friday November 24, 2017 Colin Taylor

Artist’s impression of Harbour Eats – a 700 seat dining venue planned for Auckland CBD’s Commercial Bay development. Photo / Supplied

A new report on New Zealand’s retail property market says the food and beverage sector is a standout performer as retailers struggle to adapt to new technologies and shifting consumer preference.

Colliers International’s annual Retail Market Indicators Report, paints a contrasting picture of challenges and opportunities facing the nation’s retail sector.

“Consumer sentiment has dipped, retail margins remain low, and online competition remains a threat as the spectre of Amazon’s entry to the Australasian market looms,” says Leo Lee, Collier’s research manager.

“On the other hand, retail occupancy rates in Auckland remain high along the main strips, retail sales volumes and visitor numbers remain buoyant, and the key economic indicators point to a positive year ahead.”

Lee says it’s been a tough time for some retailers, with a handful of high-profile receiverships hitting the headlines this year.

“At the same time, we’ve also seen a huge boost in the food and beverage sector, which has outshone all the other core retail categories. Consumer confidence may have dipped but remains highly positive.

“In the June 2017 quarter, retail sales were up 6.4 per cent on the previous year, fuelled by the World Masters Games and the Lions rugby tour.

“Food and beverage was the standout, with sales values up 11.3 per cent compared to the same quarter in 2016.”

Leroy Wolland, retail national director at Colliers International, says landlords and tenants are embracing the strong growth of the food and beverage sector.

“Precinct Property’s 18,000sq m Commercial Bay retail development will create a huge new dining precinct in the heart of downtown Auckland.

“To be called Harbour Eats, it will house about 25 food retail choices and more than 700 seats within open air atriums

“Kiwi Property is also investing significantly in the expansion of New Zealand’s largest shopping centre, Sylvia Park, to include a new dining laneway, The Grove.

“It’s all part of the wider trend towards ‘curated’ retail experiences. People still want to get out of the house, meet friends, grab a bite to eat, try something on, touch it, feel it – there’s still room for bricks and mortar.”

Wolland says the overall retail sector remains buoyant in the main centres.

In Auckland, the vacancy rate is at 3.3 per cent – down 1.5 per cent from a year ago – while on Queen St, the vacancy rate is even lower, at 2.8 per cent.

“There’s only one high-profile vacancy on Queen St, which is the former Topshop space. There are a couple of international retailers looking at that, so it should be leased again in the next three to six months.

“The balance of Queen Street and the precincts around it – High Street, Fort Street, Britomart – are almost all full.”

In Wellington, the overall vacancy rate is at 5.6 per cent, down from 8.9 per cent a year ago, while vacancy on Lambton Quay is at a record low 3.3 per cent, down 0.2 percentage points.

In Christchurch, the CBD is also undergoing a resurgence, with the return of many national and international retailers, and the successful leasing of new developments like The Crossing.

However, regional centres are finding it tougher, Wolland says.

“They’re really battling in some of the smaller centres, with national retailers focussing on larger growth locations instead. That said, we’re still seeing investment outside of the main centres, with both Kmart and Bunnings in expansion mode.”

Fashion retail continues to be challenging, as evidenced by high-profile companies Topshop and Pumpkin Patch shutting their doors this year.

“With inflation not really ticking upwards, sales margins are still really low for some retailers. It’s a volume game. Retailers live or die based on the number of people coming into their stores.”

Wolland says ‘online disruption’ continues to prove challenging, with e-commerce, click-and-collect, and food subscription boxes all diverting foot traffic away from physical stores.

There’s also nervousness across the board around the rise of Amazon, he says.

“One of the historical barriers to using Amazon has been the time it takes to get goods delivered to Australasia from the United States and Europe. That barrier is going to be removed when Amazon’s big fulfillment centre in Melbourne begins operations this year.

“Retailers are getting the jitters, especially those selling commoditised consumables that can be easily packaged up and sent on a plane – electronics, baby goods, sportswear, fashion and the likes.

“That nervousness has led to a dip in sentiment. Retailers are cautious and not committing to new leases – if they think there’s any risk, they’ll take a wait and see approach.”

One result is that rents have remained relatively static, while landlords have had to increase incentives to motivate tenants.

Wolland says retailers have been quick to embrace disruptive technologies that can work to their advantage.

“Uber Eats is one of the exciting new technologies that food retailers are using to expand audiences and keep up with changing consumer preferences.

“Delivery on demand is not a new concept, but Uber has taken it to the next level with the convenience of being able to order from phones. They’ve also got the technology and the infrastructure to deliver the service.”

Retailers in other sectors are also lifting their game by creating in-store experiences.

“Barkers has done that with in-store barbers, and even in-house cafes in some locations.

“This is a good example of how retailers can incorporate great experiences into their offerings, which no doubt has a positive benefit in terms of retail turnover.”

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Leo Lee and Leroy Wolland, Colliers International