Auckland CBD Retail Market Snapshot Q1 2019
Demand within the prime, lower CBD retail space remained elevated over 1Q19. With no new large vacancies available in this portion of the CBD, there are virtually zero opportunities for new retailers to enter the area without compromising for a space further up the city’s busiest shopping street.
Strong spending by cruise ship visitors along with the overall flow of tourists has helped maintain competition for space and in particular from high-end offshore retailers looking to enter the market. The opening of Commercial Bay is expected to alleviate some pent up demand and create some vacancy as occupiers reshuffle to an extent.
The refurbishment at 175 Queen Street (Typo, a stationary retailer) resulted in an increase in overall supply in the first quarter, however a dramatic shift in stock is not expected until the completion of the ~18,000 sqm retail component of Precinct Properties’ Commercial Bay in 1H20. Outside of this, there are a number of small to mid-size refurbishment projects underway, including ~1,900 sqm at 246 Queen Street, which will see both office and retail stock returned to the market in 1H20.
With the retail sector’s longer term structural changes, rents for all properties in this asset class across the Auckland market have continued on a downward trend in 1Q19, with secondary assets seeing steeper declines. Prime CBD rents fell from $2,925 psm to $2,908 psm, (down 0.6%) in the quarter, with further softening forecast over the remainder of 2019. Reductions are driven primarily from rents falling away in the lower end of the grade spectrum, a trend expected to persist over 2019 and into 2020. Yields are naturally pushing out due to sectoral uncertainty, with prime CBD seeing an increase in 1Q19 to 5.88% from 5.83%. This follows similar yield performance of regional assets. We expect landlords to choose to hold or redevelop, rather than divest at this point in time.