Commercial -
See below a summary of the biggest trends within New Zealand’s retail market, plus an outlook on the next 12 months for the market.
Light at the end of the tunnel
After an extended period of challenges with the pandemic and inflation, there is some positivity on the horizon. Inflation is getting under control, interest rates are starting to reduce, and changing attitudes to hybrid work may see more office workers returning the city centres.
Patchy performance
Across the country, the performance of retail properties has been highly sensitive to location and configuration. Post-pandemic ways of working (hybrid and remote work) have had varying impacts, with some suburban locations benefiting, but often at the detriment of central city locations. Vacancy rates within city centres are often significantly higher than large-format and trade retail.
Logistics driving competitive edge
Large-format retailers are reviewing how their logistics operate alongside their retail properties. This has typically seen an increase in centralised distribution and less stock on site.
Yields stabilising at higher levels
Signals that inflation is under control and interest rates are reducing mean yields are likely to stabilise after a period of softening. Retail had previously been hit heavily by the pandemic so the post-pandemic recovery has partially offset the impact of rising interest rates.
Two-step rents
Patchy performance has led to a two-step market. Properties that have performed strongly have been achieving rental growth. Weaker properties have been impacted by softer rents, although in some cases landlords are holding vacancies longer or using short-term leases with the goal of securing full rents in the future.
Higher rents needed for new builds to stack up
Reducing yields largely offset the impact of higher construction costs during 2020-2021. Softer yields and persistently high construction costs mean higher rents are needed for new developments to be feasible. Some experts perceive construction costs are now showing signs of softening which may help improve the viability of new developments.