Retail sector uplift drives demand for shopping and entertainment centres

Nick Hargreaves, managing director for Jones Lang LaSalle.

An expected rise in retail spending has increased the demand for retail property in New Zealand, particularly shopping and entertainment centres, reports Jones Lang LaSalle.

Nick Hargreaves, managing director for Jones Lang LaSalle New Zealand, says investors are confident in the evidence of a retail sector uplift which is driving them towards retail real estate.

"According to the latest StatisticsNZ figures, the value of total retail sales was up 1.1 per cent or $195 million in the June 2012 quarter, compared with the March 2012 quarter," Hargreaves says. "The trend for the total retail sales volume has risen 6.1 per cent since a flat period in the second half of 2010. In addition, the value of total retail electronic card transactions was up 3 per cent in August 2012."

A "thought leadership" paper on the retail sector released by Jones Lang LaSalle says an improvement in the quality and availability of retail assets, rising liquidity levels and further progress in real estate transparency, are also factors contributing to a rapid uptake in the retail sector. "In light of this trend, institutional and high net worth capital is seeking greater retail exposure as it taps into favourable demographics and growing 'consumer classes' along with being attracted by the sector's defensive qualities during times of uncertainty," the report says.

Evidence cited includes the purchase of LynnMall by Kiwi Income Property Trust for $174 million in 2010, the purchase of the Metro Centre in Auckland CBD by a local investor for circa $40 million in 2011 and the former Westfield Takapuna Shopping Centre by offshore Aviva Investors for $83.5 million in June this year.

Hargreaves says JLL is continuing to work with Aviva Investors on the Shore City property, which will see positive changes in post Westfield's era." Jeremy Chai, fund manager for Aviva Investors, identified Takapuna's affluent demographic as a factor in their decision to purchase, with a view to making the centre more relevant to the needs of Takapuna's residents.

"Understanding the source of the resurgence in retail is critical, but more importantly identifying its future potential is what seals the deals." Hargreaves says.

Jones Lang LaSalle's in-house demographer, Angela Webster, says she uses a number of methods to identify potential retail investment sites including business types, alternatives and competitors, drive times, unit boundaries, urban area, traffic flows, residential distribution and predicted population growth.

"From our comprehensive demographic analysis, investors are aided to understand whether the potential purchase of an asset makes economic sense. This type of analysis also assists in the proactive management of shopping centres," Webster says.

Peter Young of Jones Lang LaSalle, manager of the Metro Centre in Auckland's Queen St, says there is no doubt that "information collation leads to outperformance".

"Leveraging off our data capturing systems and working symbiotically with the owners resulted in our recently signed Carl's Jr into the Metro Centre. This is one of the USA's top-five largest fast-food chains, and will arguably be Auckland CBD's largest retail deal so far in 2012."

According to Lang LaSalle Research, over the first half of 2012 there were around 70 retail lease transactions in Auckland's CBD, with a large proportion on smaller sites in the Queen Street Markets at 239 Queen St.

Director of valuations, Dale Winfield, says Jones Lang LaSalle recently undertook due diligence valuations for the purchases of The Plaza, Hastings and The Mall, Upper Hutt which transacted in the sub $20 million category. "Both centres have been purchased with an aim to reposition the centres through securing longer tenure of anchor tenants, while looking to enhance the retailer mix on offer," Winfield says.

"In addition, we are seeing increased demand for quality stand-alone retail assets supported by captive catchments from syndicators seeking to fill excess demand."