Large-format retail investment soars
The lift in retail spending is bolstering purchaser support for large-format retail sector investment, according to a recently released research report by Colliers and brokers active in the sector.
Ian Little, associate director of research at Colliers says: “Consumers were out spending across many retail sectors over the past year, but it was the largeformat stores — DIY/hardware stores, recreational goods outlets, electrical and electronic goods retailers and supermarkets — that garnered significant support from consumers.
“National retail spending in the large-format retail property categories totalled $22.6 billion over the six months to March 2021, up 7.1 per cent on the figure recorded for the same period last year. This compares with total retail spending that was up by 5.3 per cent over the same period.
“With overseas holiday plans suspended and more time spent at home during lockdowns, this resulted in a significant lift in spending on new furniture, homewares and hardware.
“Consumer confidence has been bolstered by better economic prospects, job security, low interest rates and the wealth effect resulting from house values reaching new record highs. This confidence has seen consumers continuing to spend more within large format stores.”
Colliers capital markets director Blair Peterken says: “The number of buyers scouting for large-format retail properties across New Zealand continues to be among the highest on record, leading to intense competition and strong bidding, especially for prime quality stock.
“In February 2018 we sold Bunnings in Hamilton South for $25.1 million and then again in November 2020 for $36.25 million. The yield firmed from 5.38 per cent to around 4 per cent in only two and a half years, illustrating how quickly the market has tightened in this sector.
“It is quite apparent that the popularity and success of the large-format sector as a sub-sector of retail has really grown and is not just limited to main centres. The regions have also seen significant yield compression in the past 18 months.
“We’ve been recently involved in selling Bunnings New Lynn for $55.75 million at a yield of 3.92 per cent, as well as Bunnings Queenstown, Countdown Mosgiel and Countdown Stratford for market-leading prices and yields,” says Peterken.
Colliers’ other notable transactions in the past 18 months include Mitre10 New Lynn, Countdown Grey Lynn and Amberley’s Brackenfield Shopping Centre.
“The growth in the sector is undeniable and the prosperity and confidence in the fundamentals indicate the momentum is set to continue,” says Peterken.
Leroy Wolland, national director retail at Colliers, notes that tenant demand for large-format retail space has been particularly resilient.
“Vacancy rates lifted across the retail sector over the course of 2020 with the exception of the large format retail sector which experienced little change, remaining near their extremely low levels.
“By way of example, vacancy within Auckland’s large-format sector ended 2020 at just 1 per cent compared with 3 per cent within shopping centres and a strip retail vacancy rate of 8.5 per cent.
“Large-format vacancy rates have moved within a tight band over an extended period, reflecting high levels of demand from occupiers with a new wave of international retailers looking to enter the local market.
“The increase in demand from Australian retailers is extremely promising for this sector.”