Retail rent highest in Auckland CBD

Auckland CBD has the most expensive retail rents in the country.

Auckland's central business district is home to the most expensive retail precinct in New Zealand with rents predicted to rise even higher in the city and also nationally this year, according to an in-depth document entitled Australia and New Zealand Research and Forecast Report - Retail for the first half of 2016 just released by Colliers International.

"The average net prime rent for Auckland CBD retail space is now $2950 per square metre - driven up by the impact of population increases," writes the author of the New Zealand section of the report, Chris Dibble, director, research and consulting based in the agency's Auckland office.

"By comparison, large format rents in the Auckland suburbs are typically a tenth of this cost while Wellington CBD's average prime gross rents are at $1270 per square metre [$1,055 per sq m net] which is substantially lower than Auckland, but also on the rise."

Dibble says Auckland CBD prime net rents increased by around 12 per cent over the past year while Wellington CBD prime gross rents increased by 5 per cent [up 1.5 per cent net].

"This was higher than many preceding years with the double whammy of a persistently low inflation rate increasing the real rate rise and this will be exacerbated as the pace of retail rents rise and inflation rates stay low.

"Underlying confidence among retailers, driven by better economic conditions, along with competition from investors is pushing up prices with higher rates of rent rises approaching."

"Nationally, most markets are seeing rising rents for prime quality premises and a plateauing in rents for secondary quality premises. Where population is increasing the most, is where rents are rising the most, and vice-versa."

Dibble says that, in 2015, the retail sector accounted for almost a quarter of all property sales activity and this was steady across most price bands.

"Although this is second spot behind the industrial sector, there are a higher number of opportunities to purchase industrial properties than retail.

Retailers pay high prices for space in Auckland's Queen St.

In the less than $2 million price band, which accounts for 85 per cent of all of New Zealand's commercial property activity, almost 1100 property sales were recorded in retail. "If more had been brought to market there would have undoubtedly been more sales to tally," Dibble says.

"Over the past eight years around 1000 to 1200 sales per annum have been recorded compared to 1600 to 2100 sales per annum between 1999 and 2007.

"Further evidence of the competition for a lack of sales stock has been the firming in retail yields over the past 12 months. In Auckland and Wellington combined retail yields firmed by 16 basis points [bps], 20 bps, and 10 bps for the CBD, bulk retail and regional centre sectors respectively."

"At the other end of the scale, 60 retail properties sold for more than $5 million in 2015, which was the second highest number of sales, and the third highest in aggregate values at just under $1 billion."

Chris Dibble, Colliers International.

The report says a number of high profile retail property sales have settled this year or are expected to settle soon. They include: two former Westfield shopping centres, Zone 7 in Westgate; a half share in The Base in Te Rapa outside Hamilton; Centre Place South in Hamilton city; Shore City in Takapuna; Pukekohe Mega Centre, a national Progressive Enterprises portfolio and Papamoa's Fashion Island in Tauranga.

"These sales combine to more than $1 billion in sales activity already," Dibble says. "This level of activity will likely place 2016 as the second highest year across all retail property values - but still some way off the $3.2 billion for the 2014 year after major purchasing activity in New Zealand for the first time by Singapore based global investment fund GIC and Canadian pension investment managers PSP Investments.

Dibble says retailers are eyeing up the continued record high net permanent and long-term immigration growth as a necessity for further profitability. "Rising credit growth coupled with rising house prices are a happy sight for many retailers. They know new furniture, appliances and more gardening and building supplies will be top of the shopping list."