Difficult trading conditions and changes in the shopping habits of consumers continue to impact Auckland’s retail property scene, with vacancy rates rising across the region over the last year. This is according to latest market data by real estate agency Bayleys.

New figures reveal that retail vacancy rates in Auckland have climbed to 4.5 per cent, up from just 1.2 per cent at the same time in 2014.

The market analysis by Bayleys Research spotlights that a large proportion of the retail vacancy continues to be within strip retail locations, which have almost double the vacancy rates of shopping centres and bulk retail locations.

Bayleys Research national manager Ian Little said it was clear those strip locations had been slower to recover from the post global financial crisis recession, changing shopping habits and the rising popularity of online shopping. 

“Consumers now have more choice than ever before; choosing either to shop online or at locations with a distinct point of difference by offering more than just a bricks and mortar outlet. Some retailers have struggled to keep up with these advances in consumer behaviour,”  Little said.

“Given the strong competition for consumer dollars, retail precincts which provide consumers with an experience and embrace the online sector tend to be winning. 

“Consumers’ increased access to information, on-the-go, means shoppers are making more informed decisions, and have greater expectations of the service and offerings retailers can provide.”

Online consumer spending in New Zealand is worth $5 billion, which is relatively small compared with the overall retail spend of $75 billion, but this portion of retail spending is split between domestic and offshore retailers. 

In an effort to increase the amount spent domestically, the government is proposing new rules on GST for offshore online retailers. Currently goods are GST exempt if they fall under $400. This permits offshore retailers to offer cheaper prices, creating a challenging environment for traditional bricks and mortar retailers which are required to charge GST.  A law change has been signalled to enforce 15 per cent GST on goods under $400 in value, which would require overseas retailers agreeing to the New Zealand GST tax provision.

The Bayleys Research data records shopping centre vacancy rates at just over three per cent in 2015, a large jump up from what has historically been a low vacancy rate in this sector.  Vacancy in 2014 sat at 1.13 per cent. 

“Tenants are demanding a higher quality of premises, and secondary property owners are having more difficulty filling space,”  Little said.

“After falling 12 months ago, vacancy in the bulk retail sector has returned to 2012 and 2013 levels, bouncing back up over the past year to 2.6 per cent in 2015.  This is a rise of more than one per cent since 2014.”

Of the urban shopping locations Bayleys Research surveys, the northern precinct maintains the highest occupancy rate in Auckland, with vacancy rising only marginally to 2.5 per cent. Northern precinct properties have a high proportion of prime quality buildings and shopping centres, which has contributed significantly to the lower vacancy rate.

Southern retail has a similarly low vacancy rate, sitting at 2.8 per cent, with vacancy in the central and west precincts notably higher.

“Central Auckland, although containing arguably some of the best strip retail in the region, also contains a large percentage of secondary property,”  Little said.  “It has the highest vacancy rate among the precincts at 6.6 per cent, an increase of 1.4 per cent over the past year.” 

The western precinct had the greatest movement in vacancy, jumping more than 2.5 per cent in twelve months to sit at 5.1 per cent vacant in the 2015 survey.  This movement was caused by a number of shops on level two of Westcity being vacant at the time of surveying.

A-grade property is the best performing class in the retail sector, with the majority of vacant space in Auckland made up of B and C-grade stock.

“Unsurprisingly, tenants occupying A-grade properties are a lot more stable, with average turnover of tenancies, sitting at just eight per cent,”  Little said.

“With the gradual migration of office tenancies north toward the waterfront over recent years, lower Queen Street is in high demand from luxury retail brands. British brand French Connection (FCUK) is looking to follow high end international brands Christian Dior, Prada, Louis Vuitton, Gucci and Swarovski, which are all located on Auckland’s lower Queen Street in prime position to attract the cruise ship passenger dollar.”

With Precinct Properties’ announcement of a $550 million retail and office development on the existing Downtown Shopping Centre, demand to be located in this multilevel laneway style environment is expected to increase further. Meanwhile, further up Queen Street, UK clothing brand Top Shop recently opened and Australian clothing chain, Seed Heritage, has opened its first store in Ponsonby, with rumoured plans for two further outlets around Auckland.

Auckland’s CBD retail is the 24th most expensive retail location out of 65 countries in Cushman & Wakefields “Main Streets Across the World”, which lists the most expensive retail location in each country. New York locations feature prominently at the top of the list, and closer to home, Sydney’s Pitt Street is ranked the ninth most expensive retail location in the world. Union Square in San Francisco has the highest global rental growth over 2014, increasing 30 per cent.