Retail market healthy, leasing slower

Prime retail premises in Auckland remain in good demand from tenants, although leasing activity has slowed over the past year or so.

Meanwhile, there are challenges for the retail sector ahead, according to the latest overview of the retail property market by Bayleys Research.

Latest vacancy data shows that occupancy levels remain healthy with the overall vacancy rate sitting at 2.6 per cent, says Sarah Davidson, analyst with Bayleys Research. However, she says there has been a slowing recovery in the retail sector.

"What was looking to be a gradual recovery sector turned into too much too soon and there has been some softening of the sector, particularly for strip retail premises in secondary locations," says Davidson.

The annual Bayleys Research retail survey analyses three major types of retail across the Auckland region.

As in previous surveys, shopping malls were the standout sector with a vacancy rate of under 1 per cent.

Strip retail, which Davidson says has been under the most pressure from the economic slowdown, experienced an increase in vacancy from just under 3 per cent to 4.5 per cent; while bulk retail sat in the middle, with its vacancy rate increasing from less than 1 per cent to just over 2 per cent.

Davidson says the southern and northern Auckland regions, which have a high presence of shopping malls, both recorded vacancy rates of less than 2 per cent while the central Auckland area had a 2.6 per cent vacancy.

Western Auckland has the highest level of vacancy in the region at 4.8 per cent.

Davidson says increases in strip retail and shopping centre vacancy were the major drivers of the overall vacancy increase in the west, while bulk retail vacancy remained negligible.

While Auckland retail vacancy levels have increased, they are off a low base and are still at relatively low levels.

"They remain below the overall vacancy rates for both the industrial and office sectors. However, there is still strong tenant demand for quality retail premises in well located areas with good levels of foot traffic.

Davidson says looking ahead the outlook for the major drivers of the retail sector are mildly positive but global tension about European sovereign debt hinders economic growth and therefore retail spending.

"One of the key drivers of retail spending growth is consumer confidence, with positive expectations for the economy likely to result in consumers relaxing stringent savings and debt-repayment regimes.

Davidson says the health of the housing market also has significant impact on the level of activity the retail sector experiences, with a direct correlation between increase in house construction and sales activity and a rise in spending on durable goods - appliances, white ware and electronics. In this regard, the strong bounce in the Auckland residential market will help the retail market, she says.