Rent Rises, New Store Openings And Increased Leasing Activity Point To Resurgent Retail Market

The latest market snapshots from real estate consultancy JLL reveal a continued trend of rent rises across all of Auckland’s commercial property sectors, headlined by a new benchmark of $5,500 per square metre for top prime luxury retail.

Retail
The snapshots, which examine Q2 market activity in the industrial, office and retail sectors across New Zealand’s three main centres, show that retail growth is by no means limited to luxury stores in the Auckland CBD. Retail rents are also up across suburban Auckland and Christchurch, while in the Capital activity is gaining momentum with the completion of Imperial Park in Petone and the opening of the highly anticipated Willis Lane retail development.

JLL NZ Head of Research, Gavin Read, says there are some key trends emerging in Auckland’s retail market.

“For luxury retailers, size becomes a key consideration, with units in excess of 200 square metres proving popular. We have seen incentive requirements return for most deals and the expectation is that this will continue for some time.”

Although there are no retail-only developments underway in the CBD, many of the new hotel and office buildings, such as Precinct’s 1 Queen Street, are expected to have a retail component. Further uptown, Read says the City Rail Link is already influencing market activity.

“Karanga-a-hape and Te Waihorotiu stations will be critical points for pedestrian flow to support retail further uptown. Landlords are already starting to structure short-term leases to take advantage of the City Rail Link when it opens – and astute tenants seeking favourable rates in a high growth area are currently seeking suitable space.”

Outside of the city, favourable trading performance for most categories has resulted in a rise in average rentals for shopping centres. Read says this includes some suburban and regional centres, which had seen considerable declines in the last few years, but are now seeing stabilisation or even moderate increases.”

Other notable retail activity this last quarter includes the opening of Kmart at Manukau’s Supa Centre, which becomes the largest 24/7 shopping outlet in the country, and the $15M refurbishment of the re-branded Highbury Birkenhead, which is set to re-open in time for Christmas with New Zealand’s largest entertainment facility.

Industrial
The strength of Auckland’s industrial sector endures, with continued rent increases through Q2 2023 taking average year-on-year growth for prime industrial across all precincts to 16.7%. Overall vacancy has increased slightly from 0.6% to 1.4%, but this year has seen significant new leasable space added to the market.

“Even with a slight increase in vacancy, tenants are still competing for space, with demand particularly robust for well-located, modern facilities,” says Read.

This last quarter also saw four notable transactions, totalling $146.74 million. Read says investor requirements continue to include specifications such as: modern construction, preferably with sustainability components; long-term leases with fixed growth and defined market reviews; prime locations in a growing logistics sector; and quality tenants.

Office
This last quarter saw net prime rents in Auckland’s CBD continue their upward trajectory, up 1.6% to $566 per square metre. Read says he anticipates this trend to continue, with net prime rents forecast to increase by 12.1% over the next five years to reach $635 by December 2027.

Outside of the city, net rents in Takapuna moved up for the first time since the third quarter of 2021 as vacancy decreased with leasing activity on Anzac Street and Como Street.

Overall, suburban vacancy decreased marginally from 11.6% to 11.3%, although with some clear disparity between precincts: from 2.7% in the Southern Corridor to 14.6% in Albany.

In Wellington, gross rents for both prime and secondary office space remained static, while vacancy rates in the CBD rose from 3.8% to 6.1%, which translates to an additional 28,445 square metres of mainly secondary space. Notwithstanding this significant increase, Read retains a positive outlook for the Capital’s office sector.

“The demand for seismically strengthened office spaces in the CBD is expected to underpin demand and we forecast prime rents will increase $5 per sqm, and secondary rents by $7 per sqm, by the end of the year.”

JLL’s Q2 Market Snapshots are available for download here:

• Retail
• Industrial
• Office

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