Many sub-sectors of the retail property market in New Zealand are displaying resilient performance in the face of tough consumer spending conditions, with low vacancy, rent increases and current capitalisation rates creating an excellent buying opportunity for investors.
Caiti Morgan, senior director of retail capital markets at CBRE, said positive rent growth, particularly in more dominant Auckland shopping centres, Christchurch CBD prime retail and large format retail (LFR), highlights the strength of New Zealand retail property fundamentals.
“Retail property in New Zealand has a solid forward outlook, particularly given the improved timeline of interest rate cuts.
"As a result we are seeing more investors looking at the sector and several large transactions being completed.”
Start your property search
CBRE research shows several rental growth highlights in the retail market in the periods leading up to June 2024.
Rents in Auckland major regional and regional shopping centres were up by 1.8% to 3.1% over the past year, while Auckland LFR continues outperforming other categories with a 4.5% rent increase over the same period.
Rents for Christchurch LFR also grew in the 3.1% to 5.5% range over the year to June 2024, while prime Christchurch CBD retail has had exceptionally strong growth due to a lack of available space fronting Cashel Mall.
Prime CBD face rents increased by an impressive 14% in the second quarter of 2024 compared with the first quarter.
This rent growth is positive for New Zealand retail property owners and a notable achievement in the face of tough consumer spending conditions over the past few years.
Seasonally adjusted retail sales values were down 1.3% in June compared with the March 2024 quarter, according to StatsNZ.
“Consumer spending conditions are highly challenging for most retailers right now. This makes any rent growth a considerable achievement, and indicates that retailers are still competing for well located retail space,” Morgan said.
“These rental statistics, coupled with vacancy remaining low in quality centres, shows New Zealand’s strong underlying retail property fundamentals and the resilience of our market, despite the difficult trading environment.”
International comparison
With some shopping centres overseas struggling with high vacancy rates and falling rents, there are some key differences which create a more stable retail environment in quality centres in New Zealand.
Our supply of existing well-located retail property is comparatively very tight, with less shopping centre space per capita in New Zealand than the US, Canada, Australia and the UK.
There are also limited new centres under construction in New Zealand, in part due to zoning restrictions which make it comparatively more difficult to develop greenfield property.
Retailers in New Zealand have been fairly good at maintaining appropriately-sized stores and networks; refraining from leasing too much space or opening too many new stores.
“The impact of these factors is evident when you’re walking through high quality shopping centres in New Zealand – there is hardly any vacancy,” said Morgan.
“Both domestic and international retailers operating here generally appear to be well capitalised and tend to have affordable rents relative to their trading levels.”
The common presence of quality anchor tenants here is a further positive factor, with shopping centres reliant on their anchor tenants to draw customers into the centre.
“Overseas there are plenty of examples of shopping centres with multiple vacant anchor stores which creates flow-on challenges for the entire centre. In New Zealand our anchors are generally leasing appropriately-sized spaces and are often trading well.”
Retail vacancy
Vacancy in retail centres in Auckland has remained low throughout the post-Covid years and was 1.9% overall as at June 2024.
Another particularly high-performing pocket of the market is Christchurch CBD prime retail, where there was no vacancy in street-front retail space fronting Cashel and High Streets in the second quarter of 2024.
Christchurch LFR is also under strong tenant demand with limited space available, said Jorge Chang Urrea, research manager at CBRE.
“Low vacancy is a good result given the current economic climate and elevated cost of living, which is still dampening discretionary spending. Significant competitive pressure is keeping vacancy down in select locations.”
New retail stock
Around 200,000sqm of new high quality stock is entering the market in Auckland in the near future. This includes the Maki Centre at Westgate, IKEA Mt Wellington and the Mānawa Bay Outlet Centre in the airport precinct.
An additional 240,000sqm of retail stock is in earlier planning stages.
This new stock will challenge older centres, although the timing of the new centres’ openings is likely to coincide with improved household spending and consumer confidence conditions given optimistic interest rate and inflation expectations for 2025.
In Wellington, over 100,000sqm of new retail stock is planned, mostly in The Wellington Company’s planned mixed use town centre development in Paraparaumu. This is in early planning stages.
Around 113,000sqm of new retail space is in the pipeline in Christchurch, much of it in Carter Group’s The Station development in Rolleston, which is planned to be the largest outdoor shopping centre in the South Island.
Retail property transactions
Retail property sales made up 23% of total commercial property transactions in New Zealand in the first half of 2024, the second most-transacted sector after industrial property (31%), according to CBRE Research.
The biggest retail sale in the first half of 2024 was Ponsonby Central in Auckland, which sold for $72m; followed by the sale of the Woolworths Waiata Shores Neighbourhood Centre, at 2 Te Napi Drive, Takanini, negotiated by CBRE.
The Waiata Shores centre was considered one of the best supermarket-anchored retail investments offered in the Auckland market for some years.
It was sold to a local private investor following competitive bids from multiple New Zealand-based and offshore parties.
The second half of the year has also had a strong start, with Investore Property buying Bunnings Westgate and selling PAK’n Save New Plymouth and Countdown Invercargill - a combined value of $105.3m.
Further assets are expected to be brought to market later this year as owners capitalise on the recent declines in interest rates and the compressed timeline for rate cuts, Morgan said.
- Supplied by CBRE
