Tenants Can Be Graded and Follow Offices

3:41 PM Thursday July 24, 2014 True Commercial

A new retail report issued by Bayleys Research explains that tenants can be categorised by grades as well as retail premises themselves being graded - with the strength of the tenant covenant reflecting the tenant grading.

“Tenant covenants range from A grade tenants which are international, publically listed or New Zealand companies with a long and stable trading history; through to C grade tenants, which are independent retail operations. As should be expected, there is a strong correlation between the grade of tenant and the grade of location,” the retail report says.

It says that, as expected, the presence of A grade tenants is highest in A grade retail locations across the Auckland Region. In A grade locations, 31.8 per cent of tenants are international or

publically listed retailers. A grade locations also have the smallest share of C grade retailers operating within them.

Conversely, C grade locations are predominantly occupied by independent and low profile tenants. In the Auckland Region 77.1 per cent of C grade property is occupied by C grade tenants. Good quality tenants do not typically locate here, with only 6.3 per cent of retailers in this lowest grade of property being A grade retailers – and the majority of these being banks.

In B grade tenancies, 52.8 per cent of the retailers occupying the space are C grade while 28.6 per cent of tenants are B grade. The balance of 18.6 per cent is occupied by top end A grade tenants.

The most prolific types of retailers which dominate in the Auckland Regional are clothing retailers or eateries - cafes, restaurants and takeaway outlets.

“In strip retail and shopping centres these two are by far the most common type of retailer,” Bayleys Research says. “In bulk retail centres, cafes, restaurants and takeaway outlets are the most common type of tenants. This is followed, quite predictably, by furniture retailers and then clothing outlets.”

The retail report says another notable tenant classification is personal health retailers and hairdressers which appear to be a growing part of the retail sector. “As the retail environment evolves and the focus of the high street retail offering maintains its service-orientated bent, these classes of tenant will continue to have a strong presence in the retail sector.

See tenant by grade graphic below.

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Retailers following offices

Over the last five years, there has been a clear shift in the preference for location from retailers and a northbound movement in Auckland’s central business district is clearly evident. Historically, in areas that are dense with offices and which have a high working population, there is also a strong presence of service retail. As the office density has shifted, the retail has followed.

“The northern migration of the CBD, therefore, is not solely relevant to the office sector,” Bayleys Research says.

When the heart of Auckland’s CBD was further south along Queen Street, the hub of retail was approximately between the junction of Queen St and Wellesley St, and between Queen St and Victoria St.

As the development of offices has moved further north, the migration of the office working population has continually prompted retail development to shift north as well.

“Prime retail shopping is now considered to be in the downtown area,” says the retail report.

“In Auckland, the transformation of the Waterfront started with the Viaduct. Previously occupied by warehouses associated with the port, the redevelopment evolved largely in the late 1990s.

This developed into what is now a successful mixed-use precinct, which contains some of the most highly sought food and beverage retail space in the region.

Following the establishment and success of the Viaduct, focus has now turned both east and west with retail development continuing in Britomart and the Wynyard Quarter. Again, this is largely as a result of the growing commercial presence in these areas.

The transformation of Britomart started in the mid-2000s when Cooper & Company took control of the development from, what was then, Auckland City Council.

The 6.5 hectare development has the highest concentration of heritage buildings in the city and Cooper & Company is focussed on making it Auckland’s premier high-end retail and entertainment districts. The development has attracted retailers such as Zambesi and Kate Sylvester from their long-time home in High Street.

The latest waterfront development in the CBD is unfolding in Wynyard Quarter. Again, the retail premises are following where the office population is going. Once the full Waterfront Auckland development is completed, there will be a significant supply of office and tenants and permanent residents that make retail businesses viable.