Fluctuating fortunes for the malls

Agents say some of the big malls are still doing well especially the new ones like Sylvia Park. Photo / Supplied

Some of the big shopping malls are hardest-hit by the real estate downturn.

But malls, as well as industrial real estate, could also be one of the first types of property to recover.

Zoltan Moricz, of CB Richard Ellis, said the outlook for offices was not so positive. Prime central business district offices and large malls in the $100 million to $450 million category had suffered the biggest yield shift lately, he said.

"The malls that are doing badly are quite specific: they are those that have come under a lot of competitive pressure in the last two years. By contrast, some of the big malls are actually still doing well especially the new ones in Albany and Sylvia Park," he said.

The malls' fluctuating fortunes were a reflection of the small pool of potential buyers for such large assets and the more adverse prognosis for their occupancy and rent outlook, he said. Smaller suburban shopping centres had not suffered to the same extent.

District and community shopping centres were one of the best investment sectors in terms of demand and yield, he said.

Moricz told his firm's market outlook presentation last week that commercial investment property was being hit by a "double whammy" of shrinking demand but increasing supply.

He said demand for central area and suburban offices had contracted but the amount of new space coming onto the market had increased.

Vacancies in the secondary office sector in major cities was almost double the level of vacancies in the prime sector, he said. Auckland vacant A-grade space had almost doubled in the past six months and almost tripled in the past year.

Economic growth was set to strengthen next year but the employment situation was less positive.

"Companies will be doing more with less people," he said, a situation which did not bode well for landlords.

Lower employment growth and the extra office space being built in major centres would keep the commercial sector relatively suppressed next year.

"Significant spare capacity has been created in most office occupancies through staff redundancies.

"This is best captured by the growth of the sublease and shadow space markets and will take a while to soak up before occupiers will expand. Lower employment growth combined with the extra office space capacity means that office absorption will be slower to recover than industrial and retail," Moricz said.

The supply of new Auckland buildings will peak in 2011 when 56,000sq m will be completed with the new East Building in the Britomart for Ernst & Young and Westpac and the new Victoria St West building for Telecom. Another 50,000sq m of office space could be built in Auckland during 2013.

He predicted stronger consumer spending next year which he said would mean that retail sales should turn positive and demand for retail property should increase.

A greater volume of goods being manufactured, stored and moved would mean demand for industrial premises would also increase, he said.

Kiwisaver could be of benefit to listed property trusts, he said, quoting estimates of $30 million to $45 million having been invested in this sector lately.

In the longer term, between $60 and $80 million could flow into property annually from Kiwisaver, he said. Moricz predicted institutional investors would return to a more stable property market next year.

WHERE TO NEXT?
* Empty offices until 2011
* Retail and industrial to recover
* Malls hard-hit but could pick up
* Institutions back next year