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News Release


Hard times in the city but

With the economy still sluggish, Michael Fox looks at what is happening to the capital's inner-city shopping areas.



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WELLINGTON shopkeepers struggling in a sluggish economy say they are being driven out of the city by high rents. The comments come during a retail slump which has hit the city and forced the closure of some central city businesses. Shopkeepers have warned of tough times ahead.

The Wellington Employers Chamber of Commerce says shopkeepers are querying rent rises in the tough economic climate but commercial real estate agents say it is a tenants' market, with some landlords having to sweeten deals in order to fill their properties with the right tenants.

Others say national and international chain stores such as Esprit and Borders are driving up rents as they can afford to pay more, with local operators forced to secondary sites - those off main streets such as Lambton Quay.

Shopkeepers say the shift is changing the face of the city's premier shopping district.

Laser Force owner David Marment said a 22 per cent rent increase between March 2005 and March 2010 on top of a struggling business, had forced it to move from Courtenay Place to a new building in Tory St.

Before the move, Mr Marment said, all the business was doing was keeping staff in a job. It had to decide whether to shut down or move.

"I had a look around, and when you move off that area, boy the price starts to plummet," he said.

"It's not low rental, it's just that the strips there are so expensive and they don't make sense."

Since the move, his turnover had increased by 28 per cent, with more foot traffic and cheaper rents. Other businesses had experienced the same, he said.

Some CBD rentals were overpriced and landlords needed to meet the market or face being left with empty shops. "In these tougher economic times, retailers are working smarter and perhaps it's the landlords who need to adjust to the times and work together to fend off any slump," Mr Marment said.

"It appears to me the only way you'll get a reduction in your rental, that the landlords will feel this recession . . . is when they get vacancies. So clients have to pay their rent and you struggle - it's hard."

Mr Marment said people needed to work together to get through the recession.

"The business owner is working bloody hard to get through this."

Departing Chamber of Commerce chief executive Charles Finny said the chamber was aware of concern over the issue.

"People are saying: 'How come in a declining market, landlords are trying to put rents up?'

"You would think that given the number of empty spaces around town rent shouldn't be increasing, but it's a commercial decision that a landlord has to make."

Wellington Realty director Peter Ward said the city was traditionally more expensive across all commercial properties, because of a lack of land.

"I remember when New Zealand brought out its own Monopoly version about 35 or 40 years ago and they always had Queen St as the highest and Lambton Quay as the second highest and we in the valuation profession used to say: 'Well, you know, that's the wrong way round.'

"Wellington has traditionally been higher rents than Auckland, higher land prices - the whole works. It always has done."

Figures from commercial real estate firm Jones Lang LaSalle Research show that while prime rental rates in Wellington and Auckland CBDs are comparable, secondary sites in Wellington are far more expensive, at $808 per square metre a year compared with $487.

Research and consulting manager Chris Dibble said rents for new listings had dropped, though there were no figures showing rents for established tenants.

Mr Dibble said there were several ways rents could be set.

They could be tied to the consumer price index, which was favoured in good economic times so rents rose with inflation, they could increase at a set rate, could be tied to the rental market or could be tied to tenant turnover, Mr Dibble said.

With the emissions trading scheme and GST rise set to push up inflation, those with rents tied to the CPI would be facing increases.

Generally, the landlord dictated the terms, particularly in prime areas where demand was strong, but Mr Dibble said the consultancy encouraged landlords and tenants to discuss the options.

"It's tough for a landlord as well - he needs to maintain his asset value. They also need to be very careful that they don't overstep the mark and I guess retailers can feel the brunt of it a lot."