Auckland Suburban Retail Market Snapshot Q3 2019
Suburban retail rents have continued to fall, with the prime average falling to $1,138 psm, a 2.1% reduction over last quarter.
Given the current state of the market, this quarter has been largely uneventful. While Westfield Newmarket’s initial opening has begun to satisfy international retailer demand with an alternative to Commercial Bay, overall demand remains suppressed as the threat of e-commerce grows and consumer expenditure softens. The contrast between prime and secondary assets is likely to deepen over the coming quarters, as more retailers secure quality space, further dampening secondary demand.
Contributing to the supply of suburban retail space was the completion of Westfield Newmarket’s initial offering of premium stock. International retailers have been looking to absorb some of this supply, with the opening of the country’s first Lego store and General Pacts Co. in Westfield Newmarket being prime examples. Despite a trend towards oversupply, a significant amount of retail space remains under construction. While developments still in the pipeline have seen reasonable pre-leasing activity, it is becoming increasingly apparent that developers may have overestimated the supply response and will need to set rental and incentive levels accordingly.
Only one transaction above $5 million occurred this quarter, reflecting investor sentiment towards the sector overall. As a result, yields have not followed the same trend seen in the office and industrial sectors, with the average prime and secondary yields remaining relatively flat at 6.19% and 9.00% respectively. A softening market is expected to push yields upward in the coming quarters.
Suburban rents have continued to fall, with the prime average falling to $1,138 psm, a 2.1% reduction over last quarter. This reflects the bargaining power shifting into occupiers’ hands. We expect this trend to continue through to the end of 2020 as excess supply is absorbed.