Market factors favour major mall projects

5:00 AM Wednesday December 9, 2015 Colin Taylor

Fashion giant H&M is to open its first store in Sylvia Park.

After a long period of hiatus, a substantial amount of new retail mall space is being delivered to the Auckland market says Justin Kean, national director of research and consulting at JLL.  

“This is coming down the supply pipeline in the form of new integrated retail as well as extensions to already dominant retail malls,” Kean says. “After what has been a seven year lull in supply to Auckland’s retail mall sector, the market will see a huge tranche of retail floor space coming online over the next five years.

“The completion of Westfield Albany in 2008 was the last major addition of significant retail floor space to the Auckland mall stock base. Between mid-year 2015 and 2020 total additions to space will likely equate to a further 140,000 sq m of integrated retail - a figure that is warranted by Auckland’s buoyant market, the increasing demand for retailers and the nation’s sound economic story.”

Dale Winfield, national director of valuation and advisory at JLL says there are two key factors that drive the development of new retail space.

“Firstly confidence in the underlying market is needed - especially in relation to population growth that has the ability to offer a community hub including dining and entertainment. Secondly the availability of capital in required in order to undertake a retail development. “Retail assets in the form of shopping malls and other large formats are now at the forefront of investor’s minds which has resulted in an all-time high for transaction activity in the sector with a noticeable strengthening in yields.” 

Winfield says the continued sound performance of large retail shopping centres that are able to dominate their catchment and deliver sustained income streams has encouraged intense competition for investment grade product. “Sovereign wealth and pension funds, and high net worth individuals with excess capital have invested in the retail space, and are likely to continue to do so through 2016,” he says.

Kean says funding for many of the new retail mall developments is being sourced from institutional or international capital. “Singaporean sovereign fund GIC for example is a passive investor to Scentre Group, which is extending Westfield St Luke’s and likely to be pursuing extensions at Westfield 277 Newmarket and Westfield Albany.

“Precinct is one of New Zealand’s listed property investors looking at redeveloping the Auckland’s Downtown shopping centre and the Canadian pension fund PSP Investments is likely to look at opportunities following its acquisition of the APP Fund in 2014. The underlying story is that each of these organisations has sizeable capital resources to spend,” says Kean.

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Scentre Group is likely to be pursuing extensions at Westfield 277 Newmarket.

According to JLL research, from 2015 to 2020, large additions to retail will total 140,000 sq m, against a total supply of 1.185 million sq m. This indicates that total integrated retail space is anticipated to grow between 10 per cent and 12 per cent from 2008 to 2020.

Kean says this is unlikely to create an oversupply situation because over a similar timeframe from 2006 to 2023 Auckland’s population is anticipated to grow some 28.7 per cent.

“What this means is, the market growth is there to support an expansion of retail and we require this new retail space to not only meet the demands of Auckland’s mushrooming population growth, but to allow international retailers and brands to enter the market in New Zealand.

“International retailers coming into New Zealand need modern and often speculative built space in order to accommodate their very specific needs and the Auckland market does not currently have this type of retail space international retailers require in mass.

“The announcement that fashion giant H&M is to open its first store in Sylvia Park is a prime example of how international retailers will only come in to New Zealand when they have the appropriate space to occupy.

“This year we have seen a range of new international retailer entrants to the market with the opening of David Jones, French Connection, Top Shop, Tiffany & Co and Chanel and this is probably just the tip of the iceberg.

“The outlook therefore remains positive for the sector with a significant supply pipeline being met by a long term growth story and a solid level of demand from exacting international retailers who will only put their brands into the very best space,” Kean says.

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Justin Kean, of JLL.