Auckland CBD retail market snapshot Q1 2021
While retail property market in Auckland CBD experienced a significant increase in vacancy over 2H20, no change in rents or incentive levels occurred over 4Q20.
Demand
While Auckland CBD retail vacancy held up well in 1H20, the market experienced a significant increase in vacancy over 2H20. This was consistent with national trends in the sector. Vacancy of CBD retail stock rose 344 bps to 6.7% over 2H20; reflecting 5,439 sqm of additional vacancy. With offset stock additions net absorption was -4,021 sqm. While foreign spending through tourism has been limited, domestic retail trading bounced back in 2H20. Demand for CBD retail space, however is now very sector specific; a trend we expect to continue.
Supply
The completion of 246 Queen and the opening of Bulgari's flagship store at 75 Queen St saw ~2000 sqm of retail stock added to the CBD market. From 2021 onward, we anticipate subdued new supply as projects are unlikely to include large retail components due to weaker structural occupier demand. The Auckland CBD retail development pipeline consists predominantly of ground floor retail components to office or accommodation builds. This includes 2,400 sqm at 136 Fanshawe, due for completion in Q3 2021, and 1,200 sqm at the CAB, due to be completed in Q4 this year.
Asset performance
As the market plateaus post-COVID, no change in rents or incentive levels occurred over 4Q20. Rents remained at $2,450 psm and average incentive levels stayed at 8.0%. We still anticipate the market to continue moving toward turnover related rents rather than fixed pricing. Similarly, CBD retail yields held for the third straight quarter. Upper and lower yields remain at 4.00% and 8.00% respectively for primary and secondary stock. The CBD stock yield gap has experienced gradual expansion since 2016 but most investor interest remains with prime assets.
