Mount Maunganui CBD hit by high retail rents

Mount Mainstreet is feeling the pressure of high rents. Photo / Andrew Warner

What do Tauranga CBD, Mount Mainstreet and Greerton's CBD have in common? Business reporter Zoe Hunter looks into what is becoming one of the biggest challenges for retailers.

There are more vacant shops in Mount Maunganui's CBD than usual and commercial agents say the area is feeling the pinch of high retail rents.

Experts said retail rents in the Mount were some of the highest in the Bay of Plenty, with the average asking price for prime spots nearly double those in Tauranga.

Despite that, some agents said the Mount was still the most desirable CBD in the city.

Shop vacancies were highest in Tauranga's CBD, where the retail sector was under pressure from the construction of much-needed upgrades and developments.

Demand for retail space in Greerton's CBD meant vacant shops not staying empty for long.

Colliers International research showed the highest average net rental rate for a prime retail spot in the Mount was $850 per sq m compared with $450 per sq m in Tauranga and Greerton.

Retail New Zealand chief executive Greg Harford said shop leases were one of the biggest challenges for retailers.

"Many landlords are increasing rents regularly to levels that are unsustainable for retail businesses that are not seeing revenue growth and are also being hit with higher costs," he said.

"From a retailer's point of view, rent increases are really only sustainable if they are being accompanied by increased sales."

Retail New Zealand chief executive Greg Harford. Photo / Supplied

Mount Mainstreet representative Mandy Gillgren said some Mainstreet shops had multiple operators to help overcome rising rents, she said.

"Rent increases due to new builds are most likely a contributing factor to there being more vacant shops than normal. From what I see the new buildings are finding it difficult to rent out."

Chair of the Mount Mainstreet board Grant Aislabie also responded to the Bay of Plenty Times' questions.

Aislabie said Mount Mainstreet was business association and did not keep data on vacancies and rents.

He said Mainstreet and its board had "no knowledge" of whether leases were currently one of the biggest challenges for retailers, if there were more than usual shop vacancies in the Mount, or if shop rents in the Mount were the highest in the city.

Mainstreet organisation Downtown Tauranga's chairman, Brian Berry. Photo / File

Mainstreet organisation Downtown Tauranga's chairman, Brian Berry, said the retail sector was understandably under pressure due to disruption from seismic strengthening or redevelopment projects.

Berry said competitive pressures from internet sales and more suburban shopping centres also put pressure on retail.

"Existing retailers are generally holding off committing to longer-term tenure in the CBD," he said.

"New retailers are reluctant to start up in the CBD until it recovers from the current disruption and foot traffic flows increase again."

Berry said rental rates in the CBD varied from about $225 to $750 per square metre depending on location, building quality and the configuration of the premise.

However, Berry said landlords did not like vacant premises and generally did not push for increased rentals and offered rental relief in some cases.

Berry said the demand for office space in the city centre was a lot stronger for retail as Tauranga was becoming more of a regional business hub.

Greerton Village Community Association manager Sally Benning. Photo / Andrew Warner

Greerton Village Community Association manager Sally Benning agreed leases were one of the biggest challenges facing retailers.

Benning said there were currently only two vacant shops in Greerton compared with four at the start of the year.

However, she said demand for shops in Greerton was "relatively high" and vacant shops did not stay empty for long.

The association did not collect data on rental costs, but Benning said rents and leases in Greerton were lower than other areas.

Ray White Commercial Tauranga managing director and principal Philip Hunt said all three CBDs had more vacancies than normal.

"There has been a dramatic increase in all areas, but no more than the CBD in Tauranga," he said.

But Hunt said there was "more than usual" vacancies in Mount Maunganui for this time of year.

"Mount Maunganui has five vacancies in the prime area, which is unusual coming into their peak summer retail time," he said.

A reduction in car parking, construction disruption, and a general lack of business confidence was contributing to the lack of demand in each of the CBDs, Hunt said.

"Many of our clients are holding back rather than embracing change and expansion," he said.

Hunt said the cost of rentals varied in different areas but landlords were willing to work with their tenants to ensure their success was a "win-win situation".

"[The] highest rentals are still in Mount Maunganui, with Tauranga CBD having some higher pockets in key traffic areas," he said. "Greerton remains steady and affordable."

However, Hunt said the Mount was still regarded as the most desirable CBD due to a large amount of apartment living, while the new Latitude Apartments and Farmers building will help to revitalise the Tauranga CBD.

Bayleys CBD retail specialist Lynn Bradley said Tauranga's shop rents ranged from $200 to $550 per sq m and $300 to $800 per sq m in the Mount.

"Retail has been the most challenging sector since the Global Financial Crisis, which has seen the demise of the owner-operator retailer and has contributed to vacancy rate together with the higher cost of doing business," she said.

Bayleys Commercial Tauranga sales manager Mark Walton. Photo / File

Bayleys Commercial Tauranga sales manager Mark Walton said Mount retail now had the highest rentals in the region.

"... this has become a struggle with independent retailers not being able to sustain profitability," he said.

Walton said demand for retail space in the Mount was "very high" and there was also limited supply for office space.

"However, new office developments are challenging to lease due to the high rentals required for new build costs, which are out of the range of inquiry," he said.

Tauranga Chamber of Commerce chief executive Matt Cowley. Photo / File

Tauranga Chamber of Commerce chief executive Matt Cowley said rental overheads were a big issue for all small businesses throughout the city.

"This is where market forces come into play. Landlords know they risk losing good tenants if they increase rents too much, particularly in the CBD," he said.