New Zealand Retail Landscape Looks Set To Grow
New Zealand Retail Landscape Looks Set To Grow
Research undertaken by Jones Lang LaSalle shows that projected population growth in New Zealand’s big cities will create significant new demand for retail mall space. In large markets like Auckland, Wellington and Christchurch which are already under supplied by international comparisons, we could see more than half a million square metres of additional space needed to meet this demand over the next 18 years.
Whilst the GFC subdued growth in the retail sector in many markets around the world it seems that the New Zealand retail environment has proved more resilient. Overall New Zealand Core Retail Sales have grown at an average annual rate of 3.1% since 2009 indicating that although the retail sector has faced challenges the sector has still managed to hold its own through the recession.
The total stock of retail mall space in New Zealand currently stands at 1.9 million sqm of net lettable area. According to the Property Council of New Zealand, total stock has grown at an annualised rate of 3.6% since 2006 however saw a slight dip in recent years due to the impact of the Canterbury earthquakes.
Nationally, New Zealand’s retail sales trends across the metro economies; Auckland, Waikato, Wellington & Canterbury shows a distinct contrast. These four areas are outstripping the national growth rate whilst rural areas as a whole continue to underperform.
In terms of retail space per person (retail mall penetration), New Zealand, on an international level, sits towards the bottom end of the scale standing at 0.4 sqm of mall space per person. The USA market has over 2 sqm of mall space per person however this oversupply situation has resulted in a stagnant market for retail mall assets for some time. Canada and Australia are largely seen as mature markets globally for enclosed mall space. Closer to home Melbourne has 0.88 sqm of mall space per person whereas Sydney has 1.07 sqm per person. Well ahead of the levels we see in New Zealand’s largest markets of Christchurch and Auckland.
European cities with their highly protected and often regulated high streets and historical centres tend to see relatively low levels of retail mall development. Metropolitan authorities see suburban mall development as a serious threat to the vitality and liveliness of central business districts.
Auckland has shown strong core retail sales growth; and remains the largest region for enclosed retail mall space in New Zealand and accounts for 35.2% of all retail sales whilst also accounting for 46.6% of the total enclosed retail mall space.
Dale Winfield, Auckland Valuation Manager at Jones Lang LaSalle, says, “The level mall space per person has fallen in Auckland due to the fact that its population has grown whilst the overall supply of enclosed mall space has remained relatively static. At 0.60 sqm of mall space per person (1,668 resident persons per 1,000sqm of mall) this is 37% above the national average. This level of mall space per person is however significantly lower than we would expect for a growing city of 1.5 million people suggesting that Auckland supply is behind the demand curve.”
Using population projection figures provided by Statistics New Zealand and maintaining a ratio of 0.6 sqm of retail space per person, Jones Lang LaSalle estimates that Auckland will need to develop an additional 357,000 sqm of mall space over the next 20 years just to maintain the current market balance. This is equivalent to approximately nine new St Lukes Malls over the next 18 years.
The Waikato region has shown strong core retail sales growth and is the largest city outside the main centres in terms of overall supply. The addition of Te Awa at the Base to the Waikato retail supply in 2010 made Hamilton the metro area with the largest supply of enclosed mall space per person in New Zealand. Upon completion Hamilton had close to 1 sqm of mall space per person, well ahead of the national average of 0.44 sqm per person.
For the Waikato region, projected population growth indicates an additional 27,000 sqm of space can be accommodated by the market through to 2031.
Wellington, although remaining positive has shown a lower level of growth over the same period at 2.8% per annum.
Andrew Brown, Director of the Jones Lang LaSalle Wellington office, says, “Wellington has seen retail sales grow 2.8% per annum over the last five years meaning that although behind the national average the region remains in positive territory. Additionally Wellington is geographically challenged in terms of providing suitable sites for large malls however there are still 24 enclosed malls in the region. These malls compete vigorously with Wellington’s inner city retail offering limiting the sustainability of overall retail mall supply. In fact some eight of the 24 retail malls in the Wellington Region are located in the central city indicating that the line between street facing high street shops and retail malls in Wellington is somewhat blurred.”
Looking at Wellington’s projected population growth this should provide demand for a further 37,000 sqm or another Westfield Queensgate.
Alistair Penny, National Retail Manager at Jones Lang LaSalle, says, “Canterbury, like Wellington has shown a lower level of growth in retail sales over the last five years at 2.3% per annum although numbers have been impacted by the Christchurch earthquakes."
Penny continues, "Canterbury however remains the second largest retail mall market in the country. Christchurch serves as both a retail and service hub for much of the South Island attracting significant retail mall trade from outside its boundaries. This is reinforced by the fact that despite being home to only 13% of the total New Zealand retail trade the region is home to 18.4% of the total supply of mall space. At 0.64 sqm of mall space per person (1,570 resident persons per 1,000sqm of mall), Canterbury has the greatest amount of ‘mall’ space per person in the country.”
With a strong projected population growth in Christchurch Jones Lang LaSalle research indicates that this would likely lead to demand for an additional 70,000 sqm of mall space by 2031.
Although there is strong demand outlook for retail mall space in New Zealand’s largest cities and across the regions, Jones Lang LaSalle Research concludes that there remains several barriers to the development and completion of new supply to meet this rising demand. Such issues include; achieving rental levels that will justify new builds in untested provincial locations and community opposition to new development. As well as a low penetration of national retail brands across the New Zealand market and also a lack of depth in New Zealand’s capital markets to fund new mall development.
Justin Kean, Director of Research and Capital Investment at Jones Lang LaSalle, says, “Our research shows that urban areas will often need to attain a certain level of population density and size in order to support a large regional or sub regional retail mall. It can be argued that Hamilton and Tauranga sit on this threshold and as such it is not surprising that total mall space per person drops away considerably in regions across the country as population moves away from the levels achieved in these two cities.
“Tasman and Marlborough for example see a considerable amount of high end retail spend leak south to Christchurch whilst Otago residents will drive north. Those in the Manuwatu are drawn into Wellington’s catchment and Northland residents will tend to see Auckland as a destination for purchases that sit further up their hierarchy of needs.”
Kean, adds, “The challenge remains however to get these large and very complex property developments across the line as although it is clear that the demand exists there remain considerable obstacles for new developments to crystallise. As populations grow and intensify, the retail landscape becomes increasingly sophisticated and globalised and as New Zealand’s capital markets deepen we will likely see the significant enlargement of the retail mall market nationally over the medium to long term.”