Solid demand for more mall space

By Colin Taylor

Retail sector continues to trade well despite global financial crisis backlash.

More Sylvia Parks a possibility. Photo / Supplied
More Sylvia Parks a possibility. Photo / Supplied

There is considerable demand for additional retail mall space in several areas of New Zealand, including Auckland, the Waikato and Bay of Plenty, says a Jones Lang LaSalle report.

The report, titled NZ Retail Market - much ado about shopping, says estimates of an existing need for more mall space are based on population levels.

"However, using a simple linear methodology, population growth between 2012 and 2031 has the potential to add an additional 530,000sq m of demand for regional mall space to New Zealand's largest cities."

Jones Lang LaSalle director of research Justin Kean says that overall the retail sector continues to trade well, displaying a robust rental and capital value profile despite the economic headwinds faced by the national economy since the global financial crisis and subsequent recession.

"Overall, New Zealand's core retail sales have grown at an average annual rate of 3.1 per cent since 2009 - or 1.6 per cent in real terms.

"This indicates that although the retail sector has faced the challenges of consumers de-leveraging and increasing their savings rates, which is also combined with the encroachment of online retailing, the sector has still managed to hold its own and grow some 5.4 per cent in real terms."

Kean says the level of mall space per person in Auckland has fallen as the population has grown, while the overall supply of enclosed mall space has remained relatively static.

"At 0.60sq m of mall space per person - 1668 resident persons per 1000sq m of mall - this is 37 per cent above the national average.

"However, it still looks low given the overall health of the sector in Auckland.

"We note that retail sales in Auckland have grown above trend since 2009 and Auckland's low-density expansive urban area is well suited to car-based mall retailing which often faces limited competition from retail located in the CBD."

Comparatively, Melbourne has an overall supply of 0.88sq m of mall space per person and Sydney 1.07sq m of mall space per person.

"If Auckland were to increase its level of enclosed mall space to be on a par with Australia, we would see an additional 232,000sq m added to stock, whereby the market would still likely be in balance. This is akin to nearly four additional Sylvia Parks.

"If we maintain a ratio of 0.60sq m of retail space per person, then using population projection figures provided by Statistics New Zealand we can conclude that Auckland needs to develop an additional 357,000sq m of mall space over the next 20 years just to maintain the current market equilibrium. This is equivalent to adding nine malls the size of Westfield St Lukes to retail supply by 2031."

Kean says that similar reckoning would indicate an additional 27,000sq m of space could be accommodated by the Waikato market and the Bay of Plenty 20,000sq m. "The challenge is getting such large and very complex property developments across the line," he says. "Although it is clear that the demand exists there remain considerable obstacles for new developments to crystallise."

Kean cites some of the obstacles:

Tenant reluctance to pay rentals needed to justify new malls which is often compounded by the rental differential between high-street strip retail at $500 a square metre and that required by a mall operator to justify development at $1000-plus a square metre.

Neophobia, or community opposition, to new development with mall developers often struggling to get local authorities to decide in their favour.

Insufficient retail brands with the market struggling to offer a full range of choice.

Lack of depth in limited-capital markets, with retail malls requiring large amounts of capital and large cashflows to fully develop.

What's at stake

New Report: NZ Retail Market.
From: Jones Lang LaSalle.
Finding: Considerable demand for new malls.
Based on: Population ratio levels and projected increases.

- NZ Herald

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on red akl_n2 at 17 Sep 2014 03:57:46 Processing Time: 450ms