Wellington Retail market snapshot Q3 2020
The COVID-19 pandemic continues to gradually exert an impact on Wellington's retail sector as vacancy rates across the CBD submarkets begin to fluctuate moderately. During our latest 1H20 vacancy survey, CBD vacancy increased by 1.0% whilst vacancy rates in the Southern CBD reduced substantially by 3.4%. However, we expect to see vacancy rates pick up more noticeably during 2H20 due to fewer tenants and increased pressure on existing businesses. We are likely to see business closures, although predicting scale is difficult.
More withdrawals were recorded than completions in the Wellington retail sector over 1H20, with total stock falling from 110,127 sqm in 2H19 to 109,095 sqm. We have observed a downward trend in the number of projects completing and exiting the pipeline over recent halves. Like the city’s office sector, Wellington’s retail market continues to face issues around low NBS rated stock, lack of available space, and high construction costs. These have resulted in a continuing bottleneck on the supply pipeline for the sector.
Prime gross rents fell 5.2% to $2,181 psm over 3Q20, with secondary gross rents experiencing a larger fall of 6.0% to $646 psm. Incentive levels offered have also increased. Yields rose slightly across the board for retail over 3Q20. Average prime CBD gross yields now sit at 7.25%, up 12bps from 7.13% last quarter. As in Auckland and Christchurch, we have begun to see a trend where the size of ‘prime’ patches from an occupiers’ perspective has shrunk. Changing market dynamics on activity will inevitably result in some yield expansion.