According to new retail property market data, Australian retailers trading in New Zealand appear to have performed better here than they have back home, helping leasing activity stay positive in Auckland over the past 12 months, says Alan McMahon, chairman of the Royal Institution of Chartered Surveyors (RICS) in New Zealand.
"The retail market has been a surprise stand-out in terms of performance this year," says McMahon. "Despite that, rental growth remains elusive and incentives are still playing a part in lease negotiations, especially in secondary locations."
Hot spots of high demand are concentrated around prime locations as well as in sites where significant retail projects are underway, for example in the underserviced area of Stoddard Rd, Mt Roskill and the growth area of Silverdale, north of Auckland.
Weakness in consumer spending in the Australian market continues to pose a risk to New Zealand expansion, with some chains closing stores in Australia, while others have reallocated resources to open stores in emerging markets such as China.
"Our projection for Auckland anticipates a modest increase in prime retail rentals. For the moment, there is still steady demand from New Zealand and Australian retail chains for prime retail outlets," McMahon says.
Overall vacancy in the Auckland retail market has remained virtually constant over the past year, up 0.5 per cent to five per cent in June 2012. Close to 27,000 sq m of retail space remains empty across the Auckland CBD, Newmarket, Dominion Rd, Takapuna, Ponsonby Rd, Parnell and Henderson precincts.
However, four of the seven retail precincts experienced a reduction in vacancy in the past 12 months. Takapuna in particular showed a noticeable improvement, declining to 3.1 per cent after peaking at 5.6 per cent at the end of June 2011.
Vacancy in the larger and higher profile areas of Queen Street and Newmarket are 3.8 per cent and six per cent respectively, each declining 0.3 per cent over the past 12 months.
Henderson recorded the highest retail vacancy, at 7.8 per cent in June 2012. A year ago Dominion Rd vacancy reached a record low of 4.5 per cent and has remained relatively flat since then, up 0.3 per cent to 4.8 per cent in the year to June 2012. On the other hand, vacancy along Ponsonby Rd remains tight at just 1.9 per cent. "As the economy continues to slowly gather momentum, we anticipate a reduction in prime retail vacancy in Auckland over the next 12 months," McMahon says.
"In terms of new supply in Auckland, two retail developments along Stoddard Road have been a welcome addition to the Mt Roskill precinct, which has been underserviced for many years," he says.
McMahon says the activity of supermarkets and general merchandisers has stimulated the development of the retail areas around them. New World recently opened on Stoddard Road and The Warehouse and McDonalds are also due to open, along with 20 smaller format stores, in a new centre expected to be complete by the first quarter of 2013.
The Silverdale Centre, situated in an area experiencing rapid population growth, has proved popular among retailers and opened last month.
The Warehouse serves as a major anchor tenant in the new Silverdale centre with 34 other retailers, adding about 24,000 sq m of retail space. Other tenants confirmed there include Countdown, Noel Leeming and Number One Shoes.
NZRPG's plans for a new metropolitan centre at Westgate includes distinctive precincts for mall and street-based retail, bulky goods and homemaker retail, and trade-based retail.
"A staggering 192,000 square metres of space will be offered in the Westgate centre as stages become available over the next few years," says McMahon.
New life has been given to the 13,609 sq m former DYC Vinegar factory site in Ponsonby after its owner, Progressive Enterprises, unveiled plans to invest $73 million into a new development. The site will comprise Cider, a new commercial and retail development, and a residential precinct known as Vinegar Lane. The proposed Cider building will feature a 4360 sq m Countdown supermarket with five underground parking levels as well as four levels of office space above the supermarket.
Retail spending is showing some signs of growth, developments are being planned and built, and vacancy levels in the best shopping precincts are stable or falling. But any talk of recovery has to be tempered with a degree of caution - as it will be patchy, McMahon says.
"Most shopping centres expect stable rents and values. That is better than the generally declining picture of the past two to three years, but not encouraging enough to trigger new retail supply around the country," he says.