Retail property’s strong finish and future prospects

colliers grafton roadColliers International is of the view that demand for retail assets will continue next year in the face of selective buyers.

“Remarkably, the industrial sector’s performance will be surpassed by the retail sector in 2016,” says a Colliers International spokesperson. “A strong finish to 2015 will position the sector at the forefront in 2016. ”

Retail typically accounts for around 20 per cent of national sales transaction activity compared to 50 per cent in the industrial sector.

“Large scale retail asset sales in the North Island – originally brought to market in 2015 – will demonstrate the sector’s dominance. The complexity involved in these transactions slowed down the process, which were originally thought to sell within the 2015 year,” explains the spokesperson.

“Investors will treat investment opportunities on a case by case basis in 2016 – no matter the offering.

“Retailers’ prosperity in the short to medium term will be driven by positive demographic and socio-economic factors that will boost the number of people buying and the amount they are spending at their shops. Not all retailers will be positioned well in this regard, but retailers enjoying a positive mix of these factors will flourish. We expect that 2016 will still provide diverging commentary surrounding the suburbs versus the CBD, strip versus mall and offline versus online retailing. The government’s latest changes to GST for online retail will bring New Zealand in line with global best practice.”

According to Leroy Wolland, director of retail, retail is benefiting from record high net immigration, strong labour conditions and a rising housing market all within a low interest rate environment.

“The demand for retail space within Auckland’s CBD, suburbs and shopping centres illustrate a sector on fire. Vacancy levels are at record lows across Auckland and several new retail developments in the Auckland market have opened fully leased,” he says.

“In Christchurch, the rebuild is well under way, seeing record activity levels. Wellington is back in favour with rising interest levels from international retailers off the back of commitment from David Jones and Seed Heritage with several other international brands knocking on the door.

“The buoyancy in the investment sector for quality retail assets remains strong. Two recent large scale retail asset transactions in NZ were the sale of the 25,500 sqm large format zone of the Westgate Town Centre and the sale of 19 Countdown Supermarkets, which sold at strong yields illustrating the demand for quality retail assets.

“We see this demand continuing through 2016.”

Economically, post-GFC global economic and financial management by Reserve Bank governors has driven down cash and bond yields, propelling property to the forefront of decision making for yield hungry investors.

The low inflation, low interest rate environment with buoyant business activity has produced a snowball effect on value growth that has picked up speed and will not slow down in 2016.

“Demand for commercial investments and add-value opportunities continues to accelerate across Auckland. We are seeing unprecedented yields being achieved for investment grade properties in the commercial, industrial and retail sectors,” says Gareth Fraser, director of investment sales.

“Our auction clearance rate at 73 per cent is at its highest level ever. Commercial investors continue to compete for properties and chase yield. This trend will only continue for 2016 given historically low interest rates.”

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