Construction activity changes the future of retail
Auckland’s retail property scene has begun significant transformation, as construction activity hits new heights and changes the future of retailing across the central city.
Nilesh Patel, a CBD retail leasing specialist at Colliers International, says despite a new era of international and local retailing for the central city, it may not be all “plain sailing” over the next 12 to 18 months if landlord expectations are not well managed.
Precinct Properties’ Commercial Bay retail centre on the CBD waterfront opened in early September with the H&M 3500sq m flagship store spread across four levels.
It is the first of the about 120 retailers in the 18,000sq m development destined to become fully operational by the third quarter of 2019.
Scentre Group’s expansion to Westfield Newmarket, 4km from the CBD, incorporates multiple sites over 4.5ha. Upon completion forecast for the fourth quarter of 2019, the gross lettable area will reach 88,150sq m, servicing more than 230 new specialty stores. This will be the home of Auckland’s first David Jones department store.
Patel believes new stock entering the market in late next year will boost retail supply to new levels, but expectations of tenant demand and new benchmark rents will need to be managed over the long term.
“Due to the already high lease costs associated with shopping malls, coupled with percentage rents, high overheads and high total occupancy costs, I believe it will be difficult for some retailers to sustain affordable sales revenue,” says Patel.
“Landlords need to recognise this and look at the overall lease structure; not just focus on the highest rental values in order to add value to their assets over the long run.
“Having good long-term tenants is rare; this should take priority over which tenant is willing to pay more for the space.”
Precinct Properties reports precommitment of almost 80 per cent.
With some of the highest foot traffic in the CBD recorded on the corner of Queen and Customs Streets, Commercial Bay is perfectly placed to benefit from this location.
Precinct research indicates
230,000 passengers arrive at Downtown CBD via cruise ship and an estimated 30,000 people work within
500m of the Commercial Bay precinct.
The Auckland CBD worker population is predicted to grow at an average
1.8 per cent pa, from 92,000 in 2014 — to 125,000 by 2031.
At Westfield Newmarket, a retail catchment analysis from MacroPlanDimasi shows a trade area population of almost 544,000 residents and an estimated $9.3 billion retail spend. Total retail spend per capita in the Main Trade Area in 2017 is estimated at $18,754 — 18 per cent above the Auckland regional average of $15,866.
“Landlords needs to understand their catchment, competitors and tenant covenant to be successful in today’s environment,” Patel points out. However, despite these challenges there are clear benefits to the new developments.
“This level of new supply to our market now enables new international brands to enter the Auckland central city retail scene. This will provide the consumer with a variety of retail choices that will ultimately enhance the consumers shopping experience,” says Patel.