Hard job, shopping for shops

By COLIN TAYLOR

Soaring retail spending has pushed up the demand for retail properties, making it difficult for real estate investors to find enough properties to fill their portfolios.

According to Statistics New Zealand, shoppers spent $53 billion in the year to June compared with $39 billion in 1999, a $14 billion increase.

Despite predictions of a slow-down in spending, total retail sales for July 2004 were $4.56 billion or 7.9 per cent higher than July last year.

According to the latest Property Council investment performance figures, small shopping centres, small bulk retail outlets and strip retail show returns of up to 17.7 per cent in the past year.

Larger shopping centres are also showing healthy returns rising from 10.57 per cent to 17.58 per cent in the past year.

The boom in retail spending is credited to low unemployment, wage rises, climbing tourist numbers and low interest rates.

The result is that finding properties to include in the Colliers International Retail Portfolio has been difficult, says Peter Herdson, commercial sales director.

"Prices continue to strengthen and retail properties that come on to the market don't sit around for long," Herdson says.

A Chancery fashion shop recently sold in just four days to Viranda Property Network for $832,000, representing a yield of 8.5 per cent. The tenant pays $70,740 a year in rent and there are three years to run on the lease.

Viranda has bought $38 million worth of property this year and $10.2 million in the past month.

It took only a week for Colliers to sell The Warehouse at Hillcrest, Hamilton, at a 9 per cent yield to a firm that syndicated it to 11 individuals.

"The property has been sold by us three times in the past four years and has climbed steadily in price," says Herdson.

"The yield has dropped from 11 per cent to 9 per cent over four years, and at the current rent of $100 sq m plus carparking the building couldn't be replaced."

Mark Brunton, Colliers' Hamilton director, says tenant strength, the seven years left on the lease, guaranteed rental growth, and limited opportunities to retail on the eastern side of the Waikato River have buyers lining up.

Brunton says Hamilton is in the process of transition to large format stores.

In some communities these large stores are becoming the shopping hub as customers look for convenience, entertainment and cafes on the one site.

The floor space in New Zealand shopping centres is low by international standards and there is a demand for more centres.

Property investors are bullish across all retail sectors, says Herdson.

They see retail property as a growth sector and recent interest rate rises have had no effect because the market has a shortage of quality properties for sale.

In many overseas markets retail yields are lower than in New Zealand and investors feel there is scope for good capital growth here in the medium term.

"It's an affordable sector to invest in, and investors also take the view that they can always get a tenant."

Colliers has just launched 19 retail properties worth about $70 million, including the Sunnynook Shopping Centre on the North Shore.

Fifteen specialty shops on separate titles are for sale, either separately or together as one. The shops are anchored by Foodtown, which is on its own title and not included in the sale.

Expansion and redevelopment of the centre's eastern end to include a mixture of new tenancies will be finished by the end of the year and add to a current rent roll of $598,000 a year.

The property, off Link Drive, is in a large intensive residential area, which is the hub of North Shore development and is solid suburban retail investment, says Andrew Hiskens, Colliers North Shore manager.

The shopping centre is owned by a partnership that is now winding up and is on the market for the first time in 12 years.

Rents are comparable with other similar shopping centres.

Vacancy rates are about 1 per cent and there has been a lot of leasing activity, particularly in strip areas. In some instances key money has been paid in order to secure tenancies.

The Colliers portfolio also contains a 6705 sq m bulk retail development in Invercargill being sold by Auckland-based Pacific Retail Properties. It is tenanted by Bond & Bond, Noel Leeming, No 1 Shoe Warehouse and Lighting Plus.