Market Ihdicators Colliers I INTERNATIONAL NEW ZEALAND RETAIL 0' Tu RN I NG BACK ow i I _,,-K5celerating six The Terrace Christchurch CBD, Christchurch The Terrace is a $140 million redevelopment of the Christchurch hospitality precinct previously known as The Strip on Oxford Terrace. The precinct is being developed by Hereford Holdings Limited and will include 3,500 sqm of retail space. It is due for completion in early 2017 and will incorporate premium restaurants and bars, laneways, courtyards and roof terraces. Artist's impression Contents Key Nationwide Trends 1 Introduction 3 Key Findings 3 Retail Market Indicators 4 Auckland 5 Wellington 7 Christchurch 9 Hamilton 10 Palmerston North 10 Nelson 10 Queenstown 11 Rotorua 11 Hawke's Bay 11 Tauranga/Mt Maunganui 12 Dunedin 12 Outlook 13 Retail Leasing Activity 14 Retail Sales Activity 15 Retail Developments 16 colliers.co.nz/Find-Research Join our LinkedIn group: Colliers International New Zealand Network IN BRIEF NEW ZEALAND RETAIL Q2 2016 REVIEW 1 2 AUCKL AND Vacancy 4.3% Average Prime Net Rent $1,017/sqm Average Secondary Net Rent $513/sqm Average Prime Market Yield 5.91% Average Secondary Market Yield 8.05% Retail Investor Confidence: net positive 48% OUTLOOK: Demand   Supply 3 HAMILTON Average Prime Net Rent Average Secondary Net Rent Average Prime Market Yield Average Secondary Market Yield OUTLOOK: Demand $388/sqm $175/sqm 7.00% 9.13%   Supply TAURANGA/MT MAUNGANUI Average Prime Net Rent Average Secondary Net Rent Average Prime Market Yield Average Secondary Market Yield OUTLOOK: Demand $444/sqm $231/sqm 6.25% 7.25%   Supply 8 10 DUNEDIN Vacancy 7.6% Average Prime Net Rent $825/sqm Average Secondary Net Rent $300/sqm Average Prime Market Yield 7.13% Average Secondary Market Yield 9.75% OUTLOOK: Demand 11 9   Supply QUEENSTOWN Average Prime Net Rent Average Secondary Net Rent Average Prime Market Yield Average Secondary Market Yield OUTLOOK: Demand $1,650/sqm $725/sqm 4.50% 5.50% 11 10   Supply Source: Colliers International Research Note: Rents are based on averages. Refer to Market Indicators on page 4 for futher breakdown. 1 4 ROTORUA 1 Average Prime Net Rent Average Secondary Net Rent Average Prime Market Yield Average Secondary Market Yield OUTLOOK: Demand 2   Supply 3 5 4 HAWKE'S BAY Average Prime Net Rent Average Secondary Net Rent Average Prime Market Yield Average Secondary Market Yield 5 OUTLOOK: Demand 6 OUTLOOK: Demand 7 $450/sqm $225/sqm 7.50% 10.00%   Supply WELLINGTON Vacancy 8.9% Average Prime Net Rent* $1,257/sqm Average Secondary Net Rent* $732/sqm Average Prime Market Yield 6.85% Average Secondary Market Yield 7.38% NELSON OUTLOOK: Demand   Supply Average Prime Net Rent Average Secondary Net Rent Average Prime Market Yield Average Secondary Market Yield 7 Average Prime Net Rent Average Secondary Net Rent Average Prime Market Yield Average Secondary Market Yield $423/sqm $248/sqm 7.31% 8.38% PALMERSTON NORTH 6 8 $265/sqm $150/sqm 8.50% 10.50% $575/sqm $325/sqm 6.75% 7.25% Retail Investor Confidence: net positive 30%   Supply OUTLOOK: Demand   Supply Gross Rents* 9 CHRISTCHURCH Average Prime Net Rent Average Secondary Net Rent Average Prime Market Yield Average Secondary Market Yield $813/sqm $450/sqm 7.25% 8.38% Retail Investor Confidence: net positive 12% OUTLOOK: Demand   Supply 2 Introduction New Zealand Retail CBD Market Indicator Summary Average Net Prime Rents Eight years on from the global financial crisis, many retailers have streamlined their operations, ramped up their sales campaigns and, in some cases, rationalised their space to meet the changing demand of the new consumer. New Zealand is also receiving more enquiry from international retailers and a select few national retailers are looking to expand their footprint with a more targeted approach. For these retailers, the new strategies being employed – although challenging – are working. However, not all retailers have upped the ante, and some major retail brands have closed their doors for good. This is an important reminder for many to stay focussed and not lose sight of the end game. On the flip side, the closures provide opportunities for other retailers to secure prime spots and employ a better retailing approach. Average Prime Capital Values Q2 2015 – Q2 2016 (% Change) 12 Month Forecast Q2 2015 – Q2 2016 (% Change) 12 Month Forecast Auckland 3.5%  10.3%  Hamilton 3.5%  11.1%  Tauranga 0.0%  0.0%  Wellington* 3.7%  4.2%  Christchurch 0.0%  N/A  Dunedin 0.0%  4.7%  Source: Colliers International Research *Based on gross rents These underlying conditions have given buoyancy to property leasing enquiry and activity. We are seeing occupancy highs in many locations – albeit retailers sticking to basics are the winners. New Zealand Retail Sales by Industry Supermarket & Grocery Retail   High Street Retail   Bulk Retail 20% Many retail owners are inspired by the new look and forward facing approach, but are mindful of where the sector sits in the cycle and the added requirements for immersion and interaction required. While interest rates are dragging down inflation and margins, it is keeping rents down and investor purchasing activity high. 5% -15% -20% >>A prolonged period of economic prosperity has encouraged consumers to spend more, and retailers to keep enticing them with great deals. The perceived boost in wealth from house price rises nationally is advantageous. While interest rates remain low, retail activity will remain high. Source: NZStats, Colliers International Research Note: Seasonally adjusted New Zealand Shopping Centres >> Auckland’s vacancy rates are at or near record lows depending on the sector. Construction activity is rising, but not enough in the right areas to keep rents from rising further. Investors remain extremely confident, which will push yields lower.  Town Centre    Sub Regional Centre    Regional Centre    Other  Neighbourhood Centre    Major Regional Centre    District Centre  City Centre    Bulk Retail >> The rise in new entrants to Wellington and more retailers relocating around the CBD confirms the dramatic upturn in the market’s strength in less than 18 months. The challenge for the sector will be how to keep up with this heightened level of demand. Rents are rising as a consequence of the demand, and investors are eyeing up their next move. Investor confidence is the strongest it’s been this cycle and the future looks bright. 2016 2014 2012 2010 2008 2006 Year >> A bounce back in investor confidence in Christchurch cements the sector’s new growth path. Certainty in the sector is being driven by enquiry translating into activity. This is a feature across all property types. Momentum is now building and the market’s appreciation of better times ahead will be showcased in rent and investor activity over the next 12 months. 2004 2002 2000 1998 1996 >> Trends in regional markets show that retailers sticking to the basics of locating in strong catchments while providing customers with the right product and service levels are experiencing the best outcomes. Landlords are conscious of the difficult trading environment, but are also cognisant of the need to increase returns. At this stage, much of the capital appreciation is from a firming yield environment. While this is expected to continue, rent rises will be a top priority for landlords in the coming months. 1994 1992 1990 0 1 2 Total Supply (sqm, millions) Source: PCNZ, Colliers International Research 3 3 Jun-16 Jun-15 Jun-14 Jun-13 Jun-12 J u n -1 1 Jun-10 Jun-09 Jun-08 Jun-07 Jun-06 Jun-05 Jun-04 Jun-03 Jun-02 -10% Jun-01 -5% Jun-00 0% Jun-99 Key Findings 10% Jun-98 Annual Percentage Change 15% New Zealand Retail Market Indicators Q2 2016 Precinct Net Prime Rents ($/ m²) Low Net Secondary Rents ($/m²) High Low High Prime Capital Value* ($/m²) Low Secondary Capital Value* ($/m²) High Low High Prime Market Yields** (%) Low Secondary Market Yields** (%) High Low High AUCKLAND 1,700 4,200 700 900 26,155 84,000 7,370 11,615 5.00% 6.50% 7.75% 9.50% Newmarket CBD 800 2,000 500 750 12,310 44,445 5,000 9,375 4.50% 6.50% 8.00% 10.00% Ponsonby Road 750 1,350 500 700 11,540 28,420 N/A N/A 4.75% 6.50% N/A N/A Parnell Rise 550 850 N/A N/A 7,855 17,000 N/A N/A 5.00% 7.00% N/A N/A Dominion Road 250 520 N/A N/A 3,450 9,455 N/A N/A 5.50% 7.25% N/A N/A Takapuna 500 1,000 300 450 7,145 20,000 3,530 6,000 5.00% 7.00% 7.50% 8.50% 250 525 100 250 3,335 8,075 975 3,125 6.50% 7.50% 8.00% 10.25% 180 350 100 200 2,120 4,665 835 2,220 6.75% 7.50% 8.50% 9.00% 300 500 175 250 4,000 7,690 1,945 3,335 6.50% 7.50% 7.50% 9.00% 375 600 200 300 6,820 15,000 3,075 6,000 4.50% 6.00% 5.50% 7.00% 450 700 200 450 6,000 10,770 2,500 6,000 6.50% 7.50% 7.50% 8.00% 220 320 120 220 2,750 4,415 1,200 2,750 7.25% 8.00% 8.00% 10.00% 300 600 150 300 3,750 8,570 1,365 3,335 7.00% 8.00% 9.00% 11.00% 7.50% HAMILTON CBD ROTORUA CBD TAURANGA CBD MT MAUNGANUI CBD NAPIER CBD HASTINGS CBD PALMERSTON NORTH CBD WELLINGTON 1,720 1,855 531 620 24,570 30,915 7,080 8,550 6.00% 7.00% 7.25% Willis Street Lambton Quay 752 1,087 N/A N/A 10,025 16,725 N/A N/A 6.50% 7.50% N/A N/A Courtenay Place 649 864 N/A N/A 8,655 13,290 N/A N/A 6.50% 7.50% N/A N/A Cuba Mall 561 947 N/A N/A 7,480 14,570 N/A N/A 6.50% 7.50% N/A N/A 450 700 250 400 6,000 11,665 3,335 5,715 6.00% 7.50% 7.00% 7.50% City Mall 650 1,200 350 500 9,000 15,000 4,500 7,000 6.0 7.5 7.5 9.0 CBD 600 800 350 600 8,500 12,000 4,000 7,000 7.0 8.5 8.0 9.0 1,300 2,000 450 1,000 26,000 50,000 7,500 20,000 4.00% 5.00% 5.00% 6.00% 500 1,150 150 450 5,880 20,000 1,365 5,295 5.75% 8.50% 8.50% 11.00% NELSON CBD CHRISTCHURCH QUEENSTOWN CBD DUNEDIN CBD Main Retail Centres Market Indicators Q2 2016 Shopping Centres Net Face Rents ($/m²) Low High Operating Expense ($/m²) Prime Capital Value* ($/m²) Low Low High High Prime Market Yields** (%) Low High AUCKLAND Regional Shopping Centres 650 1,650 170 270 8,125 27,500 6.00% 8.00% District Shopping Centres 260 750 150 230 2,735 11,110 6.75% 9.50% Bulk Retail Centres 200 450 45 75 2,160 6,785 6.63% 9.25% 500 1,100 170 270 5,555 16,295 6.75% 9.00% WELLINGTON Regional Shopping Centres District Shopping Centres 300 950 270 300 3,000 11,875 8.00% 10.00% Bulk Retail Centres 205 300 45 75 2,160 3,750 8.00% 9.50% CHRISTCHURCH Regional Shopping Centre 600 2,500 170 270 6,665 25,715 7.00% 9.00% District Shopping Centres 350 1,800 150 230 3,500 31,250 8.00% 10.00% Bulk Retail Centres 200 330 25 60 2,105 4,715 7.00% 9.50% Source: Colliers International Research Note: Figures are rounded Assumes 100-200 sqm shop *Assuming fully leased at market rates 4 **Assuming freehold where appropriate Auckland Auckland Retail Vacancy Rate  June 2015    June 2016 12% Demand strong in the CBD 8% 6% 4% Massey North /Westgate Henderson Takapuna Dominion Rd Parnell Ponsonby Rd Beyond the CBD, vacancy rates have edged up in the suburban markets, as retailers jostle for the hottest spots. West Auckland is a prime example, with the Westgate Town Centre attracting a number of national and local retailers from secondary locations. The Shopping Centre vacancy rate has also increased, up to 1.7% from 1.3%. Newmarket 0% Queen St 2% CBD Auckland CBD’s vacant space is the lowest in eight years, with only 3,030 sqm of available space. However, the 2.7% vacancy rate is up from 2.5% last year. The key reason for this anomaly is the reduction in total stock due to the demolition of the Downtown Shopping Centre to make way for 100 new shops by October 2018. MidCity centre’s first level retail continues to provide the majority of vacant space in the CBD. Overall Vacancy Rates 10% Source: Colliers International Research Footlocker Supply pipeline increases 191 Queen Street, Auckland CBD Total CBD supply has reduced by approximately 10% while construction work takes place on the redevelopment of Downtown. This has seen pressure on the limited supply in the CBD, as many of the tenants have moved out of the centre and into the streets. The NDG Centre has been deferred from 2021 and it will likely be another one to two years before any further announcements are made. Premises for Tiffany & Co. and Chanel in Britomart are nearing the end of refurbishment which will provide additional luxury retail space to the CBD. Shopping centre supply (which includes all types of retail centres) has grown further over the past year. The development pipeline remains healthy with an additional 125,000 sqm under construction. Robert Jones Holdings Limited has leased 662 sqm of prime Level 1 retail space at 191 Queen Street to Footlocker. Retailers nearby include TopShop and Cue, and the frontage on Queen Street provides exposure to high pedestrian flows. Rents and incentives likely to stabilise Auckland CBD rents have risen again – despite already reaching record highs. Average prime net face rents are now $2,950/sqm with more than $4,000/sqm the highest rent achieved. Many landlords are likely to lower their expectations in rent rises over the next year, albeit further rental growth at the bottom end is still expected. Bulk retail premises are approximately one-tenth the cost of prime CBD rates. Low inflation numbers continue to drag on retailers’ margins and the ability of non-CBD landlords to push up rents. Three Kings Shopping Centre and Plaza Auckland Investors are positive Investors in Auckland retail property expect conditions to improve over the next 12 months with a net positive 48% (optimists minus pessimists), according to our latest investor confidence survey. Although this is lower than the office and industrial sectors, this is the highest level of retail enthusiasm since the survey began in early 2006. The high levels of confidence combined with low interest rates will push yields lower and capital values higher. The rate of change will likely be less than previous periods as the gap between yields and debt costs reduces. Antipodean Properties has sold Three Kings Shopping Centre and Plaza to a private investor for $37 million, reflecting a yield of 5.88%. The sale of the 10,000 sqm centre is unconditional and is due to settle mid-November. 5 TH ER N MW Y Cust oms Northern Shopping Centres 3.3% 6.00% Y $750 V ict o r ia St West Vict UP AUCK ley S t We oria St E ast st LA Entertainment/Service ND t Auckland CBD M en S le an t POS Parnell Q ue PRO st 10.6% 16 $700 6.00% Central Shopping Centres 6.13% 2.5% St $325 Ea ED St Henderson St l ey Y Y es HW ll We N MW 16 5.6% y Q ue 5.63% TO $1,050 IL W RN $2,100 en S A 2.2% TE 2.5% H N O RT H Ponsonby ES r t l a n d St Q ue Col le ge Hil l Wel les $3,600 t MW 2.9% Sh o $2,700 en S t Takapuna N P National Branded ER O 18 1.6% TH ER H B AR UR M Y Luxury SOU 1.7% W St We BRITOMART st High S SOU Western Shopping Centres SOUTH ER ER N MW Dominion Rd 6.3% ley N Y $38516 6.38% W M N E R A H LA W E CK S U T KEY T Overall Vacancy Rates (%) O R ND N an Que ST Y m WE 5.50% Y um $1,400 W Cr Rd 3.9% H M 2.5% er UT PROPOSED SO St en S t Newmarket Eastern Shopping Centres HA Southern Shopping Centres Average Prime Retail Net Rents ($/m2) 0.1% M 0.7% IL TO N Average Prime Market Yields (%) H W Y 20 Trend: June 15 - June 16 Actual June 16 figure 0%/$0 No Change Source: Colliers International Research Note: Shopping centres include city centres, town centres, regional centres, district centres, neighbourhood centres and bulk retail centres Auckland Retail Market Review 2016 compared to 2015 Enquiry =  Consumer confidence =  Average prime net rents  $1,017/sqm Average secondary net rents  $513/sqm Investor confidence  net positive 48% Average prime yields  5.91% Supply  Average secondary yields  8.05% Overall vacancy  4.30% (June 2016) Demand  Buyer groups = private and institutional investors 6 Wellington Wellington Retail Vacancy Rate  June 2015    June 2016 12% Demand returns Vacancy Rates 10% The rise in new entrants to Wellington and more retailers relocating around the CBD confirms the dramatic upturn in the market’s strength in less than 18 months. Our June 2016 survey showed Wellington’s 8.9% CBD vacancy rate up fractionally from 8.3% a year ago, however, this masks the underlying trend of the sector’s resurgence. Firstly, approximately 6,400 sqm of retail space was yet to be leased by David Jones (now up and running and boosting retail spend). There were, and are, a number of new tenants signing up for space like Wittner, Platypus, Life Pharmacy, a confidential major fashion retailer as well as other major internationals all scouring around for their new home. We expect the vacancy rate to push to low 7% by mid-next year, and this may prove to be conservative. The challenge for the sector will be how to keep up with this heightened level of demand. 8% 6% 4% Courtenay Pl Cuba St Manners St Willis St Lambton Quay CBD Core 0% Overall 2% Source: Colliers International Research Supply increases Three Westfield Malls Sold Wellington The completion of refurbished space for David Jones will reintroduce a sizeable amount of CBD supply, but it won’t unlock additional space to lease. This is a rising trend, as landlords receive solid enquiry from retailers when their premises come up for lease. New office buildings will also provide new additions to the retail sector, while providing new opportunities for retailers to move to better locations. The growth of the Thorndon precinct for new government tenants as announced in Wellington Accommodation Project 2 may see a shift in retailers moving north over coming years. This will be especially noticeable for convenience and food and beverage operators looking to take advantage of the increased workforce. Shopping centre vacancy remains low in the region (see map) with all eyes on Stride Property for any announcements regarding Johnsonville mall redevelopment. In December 2015 ASX-listed Scentre Group sold three Westfield shopping centres for $549 million in two deals. NZX listed Stride Property purchased Queensgate and Chartwell centres for $445 million, and Ladstone Holdings purchased the Glenfield mall for $104 million. The sale of the three centres provided a blended a yield of 8.2%. Rents and incentives in a tight range CBD gross prime face rents and regional centre rents have increased over the past year. Bulk retail rents have remained steady. This is reflective of the retailing environment, but also the sector’s tight rental range in any region of New Zealand. Current retail spending from StatsNZ shows consumers are out spending again. Wellington retail sales were up 1.4% in the past year. However, the increase in volumes at a higher rate indicates margins remain thin which may limit landlords from increasing rents rapidly in this positive leasing environment. Platypus Shoes 93-97 Manners Street, Wellington Yields and capital values on the rise Investors in Wellington retail property were at a net positive 30% in our June 2016 confidence survey. This is the highest level of confidence since the Colliers survey began in 2008. The confidence is reflected in investment yields firming in the CBD and regional centres, down by 15 basis points and 12 basis points respectively. Bulk retail yields have remained steady after firming by 20 basis points last year. There is a lack of prime stock to invest in, which will be exacerbated by current market conditions. Investment activity will rise as purchasers take advantage of a lower interest rate environment. However, the focus will remain on capital appreciation rather than rent rises. Platypus Shoes Limited has leased 250 sqm of retail space from a private investor at 93-97 Manners Street in Wellington CBD. 7 WELLINGTON RAILWAY STATION North City Lamb ton Q u ay Lambton Quay 3.5% $2,098 $1,180 7.00% 0.0% 6.50% Willis Street 7.8% 2 Wil lis S t Queensgate Shoping Centre 0.9% Johnsonville Shopping Centre 1.8% 1 2 Willi sS t Cuba Street 3.6% Dix on St KEY Manners Street Ma 12.2% nn e rs S Overall Vacancy Rates (%) t PRO POS ED Cub aS t Wellington CBD Average Prime Retail Gross Rents ($/m2) Courtenay Place $875 7.00% Cou rten Average Prime Market Yields (%) ay P l aS t 21.6% Cub Trend: June 15 - June 16 Actual June 16 figure 0%/$0 PROPOSED Cub aS t No Change Source: Colliers International Research Prime strip retail based on 100 - 200 sqm shop area Wellington Retail Market Review 2016 compared to 2015 Enquiry =  Average prime CBD gross rents  $1,257/sqm Consumer confidence =  Average secondary CBD gross rents  $732/sqm Investor confidence  net positive 30% Average prime yields  6.85% Average secondary yields  7.38% Overall vacancy  8.90% (June 2016) Supply  Demand  Buyer groups = private and institutional investors 8 Christchurch BNZ Centre Christchurch Spending growth rates balance out Canterbury is the second largest catchment for retail spending in New Zealand behind Auckland, representing 14% of the nation’s retail spend. At first glance the slowdown in annual retail spending to 0.4% in the 12 months to June 2016 signals a market losing momentum. However, retail spending has increased by 10% since mid-2014, outpacing New Zealand’s overall growth of 9% over the same period. The latest results do signal an inevitable slowdown in spending after such a high period of activity. Growth is likely to re-emerge in the second half of the year. Stage Two of the BNZ Centre in Cashel Street is due for completion in December 2016. The $140 million precinct developed by Lichfield Holdings has approximately 5,000 sqm of ground floor retail space. Confirmed tenancies include 119 sqm leased by Michael Hill and 157 sqm by Spark. Step by step, retailers sign up Suburban retailers are sticking to ‘retailing 101’ by setting up shop in locations with the strongest catchment. Areas in the north and the west are receiving the lion’s share of this spending and are benefiting from the high number of residential projects underway. In the CBD, tipping point has been reached as enquiry is translating into leasing deals. The commitment to the CBD by major office occupiers has hastened retailers to commit to their own premises. Recent examples include Superette, Partridge Jewellers, Macpac, Country Road and more. Those who haven’t committed are either close, in discussion or are engaged with the market to source the most appropriate spot for their business. National fashion retailers are slowly rising in number, but smaller local boutique retailers may be struggling to commit given the significant jump in rents from yesteryears. Announcements from international retailers like TopShop continue to rally the sector, with more announcements expected soon. The Landing Wigram Skies, Christchurch The retail complex at The Landing in Wigram Skies is now 70% leased. A modern New World Supermarket anchored the first stage of the development which opened mid-2015. Other tenants include Joe’s Garage, Hikari Sushi Bar and a Unichem Pharmacy. The $40 million dollar project developed by Ngai Tahu Property Limited includes approximately 6000 sqm of retail space. Rents have now been set The range for CBD retail rents is now starting to firm as higher numbers of leasing deals take place. Typical net prime rents in the CBD are between $650/sqm and $800/sqm, while suburban rents are typically below $600/sqm. Many of the larger format retail rents in Christchurch range between $160/sqm and $375/sqm depending on tenant brand, size and location. Christchurch large format retail space below 1,000 sqm commands a slight premium compared with other locations around New Zealand, with the exception of Auckland. Under the current retailing environment, there is limited market rental growth expected, with the prevalence of fixed or CPI adjusted rents. Turnover rents remain predominantly the domain of larger national tenants. Unit 3/ 950 Ferry Road Ferrymead, Christchurch Investors regain confidence In the latest June 2016 Colliers International Investor Confidence survey, Christchurch’s retail sector recorded a net positive 12% (optimists minus pessimists). This is a positive turnaround for the sector from the recent downward trend, which saw only a net positive 6% in March 2016. Momentum in development and leasing activity in tandem with further yield appreciation are the main drivers, a feature of the market set to continue. Clarkmead Properties Limited sold Unit 3/950 Ferry Road for $1,732,000 to a private investor reflecting a yield of 6.1%. The property consists of 394 sqm and includes ground floor retail, first floor office and off-street car parking. 9 REGIONAL UPDATES Hamilton High profile, major asset sales in Hamilton over the past year highlight the retail sector’s recent rise in activity. The Base (half share), Westfield Chartwell and Centre Place South sold for an aggregate value of over $400 million. The national retail sector typically achieves a total annual sales value of $1.1 billion, highlighting the significant size of the three major sales. There have also been a number of smaller retail premises sold for under $2m, often reaching 6% yields. The purchasing activity by listed property vehicles, syndicates and private investors reflects the competition for assets in a sector starved of options. Investors are bullish for retail, eyeing up Hamilton’s growth in population as well as the recent surge in residential dwelling prices and the positive impact expected on consumer spend. Currently the wider Waikato region accounts for 9.4% of the nation’s total seasonally adjusted retail sales values each year. Although this remains broadly comparable to last year’s result, retail spending levels are growing at about 3% pa. This is at a higher rate than rental growth which remained typically steady, albeit a rise at the top-end range of prime rents was recorded, now at $600/sqm. Solid catchment demographics, rising rents and competitive purchasers have led to further capital appreciation and firming yields. Average prime retail properties in Hamilton will now sell with a yield between 6% and 7%, down from 7% to 8% a year ago. Secondary assets are also receiving stronger enquiry rates. Although yields are forecast to firm further, the rate of change experienced over the past 12 months is unlikely to be repeated over the next 12 months. Centre Place South Hamilton CBD, Hamilton NZX-listed company Kiwi Property Group Limited has confirmed the sale of Centre Place South to Silverfin Capital Limited for $46.8 million. Equity of $27.6 million was raised from the sale of $50,000 parcels to wholesale investors through syndication. Silverfin projected a 9% pre-tax return for the first full 12 month period, paid monthly. The 10,933 sqm shopping centre comprises of 27 tenancies, along with a new Farmers store. It also underwent a $36 million refurbishment in 2013. Palmerston North Nelson Overall demand conditions in the retail sector have been positive in the past year, helping to lift the sector’s performance from previous years. Vacancy rates across the city are low, following on from elevated enquiry levels that have translated into real activity. In particular, the large format retail sector in Palmerston North received a boost with Bed, Bath & Beyond, Repco and Animates all leasing space in 2016. Other opportunities in the strip retail sector are occurring as tenant demand remains steady and positive, but only for the right opportunities. Retail sales volumes were up 6.5% in August 2016 compared to August 2015, with total retail spending values up a further 2%, according to Paymark. This will keep retailers content, especially as rents have remained broadly stable over the last 12 months. The higher levels of activity indicate the retail sector in Palmerston North is moving into the next phase of stronger underlying demand and more positive investor confidence levels. This will assist with firming prime yields which currently range between 7.00% and 8.00%. Retailers in Nelson remain conscious of the rising, but thin margins in the sector, which is exacerbated by low inflation and a relatively stable spending environment. Population gains, as well as tourism growth, remain key to the sector’s rise in profitability. A positive outcome for tenants is that rents have remained relatively steady, with prime rents ranging between $450/sqm and $700/sqm, and secondary rents ranging between $250/sqm and $400/sqm. Forecasts of future rent rises remain below 3% pa for the majority of retailers. New leases in Trafalgar Street, Achilles Avenue and High Street indicate tenant demand is broad, catering to a varied and diverse consumer base. Investors remain challenged to find appropriate levels of stock to purchase, with anything that does become available receiving high enquiry. This is pushing yields to a tight range at the top end of the quality spectrum. Prime yields currently range between 6.00% and 7.50%, with positive underlying sentiment likely to see these rates firm further over the next 12 months. 10 Queenstown Rotorua The level of development activity in Queenstown’s retail sector continues to push new boundaries. After years of modest activity, there has been a burst of new retail space – predominantly in Frankton Flats at Remarkables Park, Five Mile and Queenstown Central (which is due for completion late 2017). New leases by Noel Leeming, The Warehouse, Harvey Norman and now Kmart indicate just how much change the sector is experiencing. Not to be left out, the traditional heart of the retail sector in the CBD continues to exceed expectations with little opportunity to secure space. Enabling the increase in floor space is the significant projections of resident population growth as well as the tourist population. While there is almost 30,000 sqm of retail space under construction or in the pipeline, there are some indications that tenant churn will likely see some space left behind that will be harder to lease. Despite all of this new supply, rents are continuing to grow, especially for prime end space in the CBD. However, given the level of new space set to enter the market over the next four years in Frankton, we would expect that rents may remain steady there. Investment yields are strong in Queenstown, reflecting the level of growth expected as well as the competition from investors for prime stock in an increasingly growing tourist destination hub. Positive economic conditions provide the underlying support for Rotorua’s buoyant retail sector for 2016. Economic data analysed by Infometrics for the Rotorua District Council in the June 2016 quarter shows: retail trade, tourism, guest nights, net migration, car registrations, house prices, consents and other important metrics were all positive over the past year, and often outperforming New Zealand overall. While the local resident population is up and spending levels are positive, the major boost has been from domestic and international visitors. According to MBIE’s Monthly Regional Tourism Estimates spending was up by 4.8% to $711 million over the past year. The higher spending levels are helping with retail leasing activity, which is helping to reduce vacancy rates from their peak in 2014. Accommodation and the food and beverage retail sectors continue to benefit from the strong tourism sector. However, the increase in house prices is seeing greater spending at large format retailers for household goods and DIY items. Retail rents in Rotorua typically range between $180 and $350/sqm, with rents at the lakefront end of Tutanekai St reaching approximately $280/sqm. Recent sales activity shows average prime yields typically ranging between 6.75% and 7.50%. Five Mile Hawke's Bay Frankton, Queenstown Another strong year of retail spending in the Hawke’s Bay has kept retailers confident in their future prospects. It has also kept yields firm in a competitive market. The 9.4% annual increase in retail spending volumes and 5.6% increase in retail spending values, according to Paymark, highlight the sector still relies on sales. Retail sales activity is buoyant, but not all retailers will be benefitting in the high volume, low margin operating environment. This is consistent with market leasing activity, with variation in performance across sectors as well as locations. A strong development pipeline is alleviating some pressure on the demand for retail space with recent lease deals including 129 Hastings Street at $423.50/sqm. A stand out purchase in the Hawke’s Bay over the past year was the SBS building in Hastings, achieving a yield of 5.68%. Stage two of Five Mile Shopping Centre is currently under construction and is due to open early 2017. The 8,000 sqm second stage consists of three large format retail buildings to be leased by The Warehouse, Noel Leeming and Look Sharp, along with smaller specialty stores. The $130 million development of 23,000 sqm also includes Five Mile stage one which opened in October last year. 11 Tauranga/ Mt Maunganui Dunedin The 7.6% vacancy rate in Dunedin is the lowest recorded since 2012. Leasing activity has been strong in the past 12 months which has been driven by a number of tenant moves throughout the CBD. There were 27 leases counterbalanced by 33 vacated shops, signalling the level of churn in the market. The overall results highlight how the retail sector is changing, with retailers jostling for position as well as securing space in restrengthened premises. The ‘Golden Block’ continues to attract enquiry from retailers around the country, but opportunities remain scarce. Pedestrian flows continue to be strong in the area, dominated by the three main malls. More large format retail premises could be an option for Dunedin which continues to attract national retailers. The proposed second generation District Plan will include new commercial and mixed use zones in order to accommodate for projected demand for retail space. Investment activity is strong and competition from locals and investors outside the area has pushed yields even further over the past 12 months. We expect more firming to continue as the search for yield remains. The latest figures from Paymark shows another buoyant period of spending activity in the area. The annual percentage change between August 2015 and 2016 shows retail spending in the Bay of Plenty up 10.1%by value and 8.9% by volume outpacing all other regions across New Zealand. The results also highlight, however, that margins remain thin for retailers in the area, relying on volume gains to drive profitability. This has been translated into the stable retail rental environment with prime rents over the past year ranging from $300/sqm to $500/sqm in Tauranga and $375/sqm to $600/sqm in Mt Maunganui. Investment intentions remain strong. Current yields for prime retail premises range from 6.50% to 7.50% in Tauranga and 4.00% to 5.50% in Mount Maunganui, which has firmed by 100 basis points over the past year. Given the growth outlook in population, house price rises and business activity we forecast retail conditions to continue improving. 94 Elizabeth Street 8.1% 8.1% 8.0% Jun-13 Jun-14 9% Jun-12 Dunedin Retail Vacancy Rate Tauranga 8% 8.2% 7.6% Vacancy Rate 7% 6% 5% 5.1% 4% 3% 2% 1% Source: Colliers International Research 12 Jun-16 NZ Uniforms has leased the former Dick Smith building at 94 Elizabeth Street for $250/sqm. The 400 sqm tenancy is situated on the entrance to Tauranga CBD and is surrounded by national retail brands such as No.1 Shoe Warehouse, Kathmandu and Plastic Box. Jun-15 J u n -1 1 0% Outlook The sector’s momentum has been created from a prolonged period of positive economic conditions. Commentators forecast this to continue – posting near, or above, long-term indicators. The wise and weary of the industry – many who have seen these conditions before – will be the beneficiaries in the game that involves quick and calculated moves to stay ahead of the competition. Factors keeping consumers and retailers much more content on their future trading expectations than in the past year will be: Keeping abreast of the latest trends in retail is not everyone’s path to success in this upswing stage of the cycle, especially those looking for passive property returns. >>national house price rises, While the stakes have been raised by this newly transformed retail industry, some traditional market characteristics will remain. Retailers should expect to have higher rents next year and investors should expect to pay more in this competitive purchasing cycle based on low interest rates and a growing depth in the number of ‘cashed-up’ and ‘yield hungry’ purchasers. >>strong population gains, >>a booming tourism market, and >>a dairy sector that is climbing out of its recent lows. The key for retailer and landlord prosperity will be to not get caught up in the hype and move too far ahead of the day-to-day activities. Perhaps most importantly, remaining grounded in the knowledge of the cyclical nature of economic and property markets. While retail is not for the faint hearted, economic conditions currently supporting both retailers and investors suggest there is little to steer the sector from its current growth path. NorthWest Shopping Centre Massey, Auckland Stride Property Limited’s NorthWest Shopping Centre opened in October last year comprising nearly 100 retail shops. NorthWest Two is located opposite the existing shopping centre. The second stage will provide around 7,700 sqm of additional retail, dining and office space and will border the Westgate Town Square. Zone 7 of Northwest has now been completed and comprises 25,000 sqm. Tenants include Harvey Norman, Rebel Sport, and Briscoes. 13 A Selection of New Zealand Retail Leasing Activity Project Name/Address Precinct NLA (m²) Date Tenant Auckland CBD 2,016 Q4 2015 The Warehouse Manukau 1,239 Q1 2016 Mt Smart Marine Ltd Footlocker AUCKLAND Atrium on Elliot, L2 & 3, Elliot Street 85 Cavendish Drive Level 1, 191 Queen Street Auckland CBD 662 Q3 2016 Sylvia Park, 286 Mount Wellington Highway Mount Wellington 2,528 Q4 2016 Zara Sylvia Park, 286 Mount Wellington Highway Mount Wellington 2,300 Q4 2016 H&M Auckland CBD TBC ~Q3 2018 H&M 210 George Street CBD 157 Q3 2015 Flight Centre 398 Cumberland Street CBD 500 Q3 2015 Anytime Fitness 239 George Street CBD 150 Q2 2016 Merric 629 Princes Street CBD 1,260 Q3 2015 Animates 256 Lambton Quay CBD TBC TBC Topshop 93-97 Manners Street CBD 250 Q3 2016 Platypus Shoes 100 Taranaki Street CBD 726 Q2 2016 The White Star Commercial Bay Retail Precinct, Customs Street DUNEDIN WELLINGTON Lyall Bay 398 Q2 2016 Brewary Limited 264 Lambton Quay Retail 9, Airport Retail Park CBD 145 Q3 2016 Cotton On 55 Willis Street CBD 109 Q2 2016 Timberland 49 Willis Street CBD 122 Q2 2016 David Lawrence ANZ Centre Christchurch CBD TBC Q4 2016 Glassons ANZ Centre Christchurch CBD TBC Q4 2016 Hallensteins ANZ Centre Christchurch CBD TBC Q4 2016 Mecca Maxima BNZ Centre Christchurch CBD 482 Q4 2016 BNZ BNZ Centre Christchurch CBD 310 Q4 2016 Pharmacy BNZ Centre Christchurch CBD 119 Q4 2016 Michael Hill BNZ Centre Christchurch CBD 63 Q4 2016 Pandora BNZ Centre Christchurch CBD 157 Q4 2016 Spark BNZ Centre Christchurch CBD 100 Q4 2016 Repotoire BNZ Centre Christchurch CBD 146 Q4 2016 Simply NZ 210-248 Rangitikei Street Palmerston North 723 Q3 2016 Bed, Bath & Beyond 126-150 Rangitikei Street Palmerston North 526 Q2 2016 Repco 126-150 Rangitikei Street Palmerston North 2,431 Q1 2016 Farmers 27 Princess Street Palmerston North 466 Q1 2016 Animates 126 Trafalgar Street Nelson 193 Q2 2016 United Video 70 Achilles Avenue Nelson CBD 152 Q1 2016 CBD Craft Brewery Depot Motueka 220 Q3 2016 High end Charity Shop CHRISTCHURCH PALMERSTON NORTH NELSON 296 High Street TAURANGA/MT MAUNGANUI 301 Cameron Road T2, 245 SH2, Bethlehem T2, 511 Cameron Road 199 Maunganui Road Unit B3, Lot 4, 30 Gravatt Road Tauranga 248 Q1 2016 Harmony Home Furniture Bethlehem 126 Q4 2016 The Pizza Library Tauranga 200 Q2 2016 Smartvets Limited Mount Maunganui 76 Q3 2016 Alice & Co. Limited Papamoa 95 Q2 2016 James Street Burgers Rotorua 200 Q3 2016 Max Frankton 1,780 Q4 2016 Harvey Norman + Bakery ROTORUA 1281 Tutanekai Street QUEENSTOWN Remarkables Park, Hawthorne Drive Five Mile Stage 1 Frankton ~530 Q4 2015 Bed Bath Beyond, Caroline Eve Five Mile Stage 2 Frankton 7,650 Q1 2017 Warehouse, Noel Leeming, LookSharp. Lighting Plus Source: Colliers International Research 14 A Selection of New Zealand Retail Sales Activity Precinct Estimated NLA (m2) Sale Date Yield Sale Price ($) Vendor Purchaser Countdown Portfolio – 19 Countdown Supermarkets Nationwide Various Q3 2015 6.50% 287,000,000 Antipodean Supermarkets Stride Property (Formerly DNZ Property Fund Ltd) Three Westfield Shopping Centres Sold – Queensgate, Chartwell and Glenfield Nationwide Various Q4 2015 8.20% 549,000,000 Scentre Group (New Zealand) Ltd Scentre Group (New Zealand) Limited & Ladstone Holdings Three Kings 10,194 Q3 2016** 5.88% $37,000,000 Antipodean Properties Private Massey ~25,000 Q3 2015 7.00% $82,500,000 NZ Retail Property Group Kiwi Property Group Newmarket TBC Q1 2016 5.20% $3,050,000 Private Vender Private Investor Papakura ~2,980 Q1 2016 7.50% $9,750,000 Papakura Super Trustees Omara Property Group Albany 1,024 Q2 2016 Average 5.01% $9,057,000 AEG Oteha Ltd Various Mt Albert 289 Q2 2016 4.32% $3,755,000 Private Vendor Private Purchaser Hobsonville 6988* Q3 2016 Undisclosed $36,295,000 Hobsonville Ltd Trust Investments Ferrymead 394 Q3 2016 6.10% $1,732,000 Clarkmead Properties Limited Private Investor Project Name/Address NATIONWIDE AUCKLAND Three Kings Shopping Centre & Plaza Zone 7, Westgate Town Centre Rialto Centre, 153 Broadway Countdown, 90 Great South Rd 8 Units, 252 Oteha Valley Rd Wendy’s, 702 Mt Albert Rd The Hobsonville Centre, 124 Hobsonville Rd CHRISTCHURCH 3/950 Ferry Rd HAMILTON Te Awa, The Base, Te Rapa Rd Te Rapa 87,000 Q3 2015 Confidential $192,500,000 Tainui Group Holdings Kiwi Property Hamilton Central Shopping Centre, Corner of Bryce, Tristam & Ward St Hamilton CBD 18,360 Q1 2016 10.35% $13,400,000 Stride Property Limited Stark Property Limited Centre Place South, 501 Victoria St Hamilton CBD 10,933 Q3 2016 7.96% $46,800,000 Kiwi Property Group Limited Undisclosed Five Mile Queenstown Stage 1 Buildings 2 & 3 9,531 Q2 2016 6.71% $40,894,000 Queenstown Gateway (5M) Ltd ARM Ninety Two Ltd (Mitchell Mackersy) Five Mile Queenstown Stage 1 Building 4 2,480 Q2 2016 6.75% $11,163,878 Queenstown Gateway (5M) Ltd Oakwood Properties Ltd Nelson 540 Q3 2016 7.50% $1,600,000 Private Trust Private Trust Countdown, 673-679 Main Street Palmerston North 1,960 Q2 2015 7.80% $7,350,000 P P Projects Ltd Mainland Capital Ltd Rangitikei Flooring, 691-693 Main St Palmerston North 665 Q3 2015 8.30% $1,005,000 Waller Family Trust Geoffrey John Harold Blackmore Smith City, 537 Main St Palmerston North 2,280 Q3 2015 8.47% $4,950,000 Humphries Developments Ltd Monsoon NZ Ltd Palmerston Indoor Sports Arena, 180 Church St Palmerston North 1,410 Q2 2016 8.22% $1,460,000 Ihaka Trust Neville Hillary Smith AvantiPlus, 407 Ferguson St Palmerston North 925 Q2 2016 8.00% $1,125,000 DRP & TJ Tylee Investment Trust Bowcorp Holdings Ltd KFC, 201-213 Rangitikei St Palmerston North 235 Q2 2016 6.00% $2,065,000 Murray Prankerd Nominees Ltd Mendip Trust The Warehouse, 64 Hillside Rd South Dunedin 23,683 Q3 2015 7.25% $14,150,000 Eldamos Investments Limited Mm Group 1 Limited 301 George St Dunedin CBD 193 Q4 2015 7.00% $1,900,000 Private Investor Private Investor Gore 3,760 Q3 2016 7.80% $5,658,000 Private Investor Private Investor Oamaru 255 Q2 2016 6.10% $1,890,000 Resturant Brands Proeprties Ltd Private Investor QUEENSTOWN NELSON 240 Trafalgar Street PALMERSTON NORTH DUNEDIN 5-9 Irwell St 271 Thames St TAURANGA/MT MAUNGANUI 14 Marsh St Tauranga 524 Q3 2016 5.10% $1,880,000 MTH Investments Limited Selinden Park LTD Unit 3, 22 Gravatt Rd Papamoa 500 Q3 2016 Sold Vacant $1,450,000 Kaurivale Holdings Limited Phillip Borrie Source: Colliers International Research *Site Area **Unconditional date (due to settle mid-November) 15 A Selection of New Zealand Retail Development Updates Precinct Estimated NLA (m2) Status Estimated Completion Owner/Developer Progressive Enterprises – $500 million expansion Nationwide Various Proposed ~2019 Progressive Enterprises Foodstuffs – Seven new supermarkets Nationwide Various Proposed Various Foodstuffs Westgate 7,700 Under Construction Q3 2016 Stride Property Limited Project Name/Address NATIONWIDE AUCKLAND NorthWest Shopping Centre Stage 2 Sylvia Park, H&M and Zara Mount Wellington ~4,800 Under Construction Q4 2016 Kiwi Property Commercial Bay Retail Centre CBD Core 18,000 Under Construction Q3 2018 Precinct Properties Holdings Limited Ormiston Town Centre (Block F & J) Flat Bush 30,000 Under Construction Q3/4 2018 Todd Property Ormiston Town Centre Ltd Orchard Business Park (Retail Hub) Albany 2,300 Under Construction TBC Orchard Park Retail Hub Limited Auckland 67,000 Under Construction TBC NZ Retail Property Group (NZRPG) Mount Wellington ~20,000 Under Construction 2022 Kiwi Property Cambridge 5,200 Construction commencing Q4 2016 Q4 2017 JV – Foster Develop Ltd Westgate Zone 9, 10, 11 & 12 Sylvia Park HAMILTON Lakewood Centre WELLINGTON Kapiti Landing Business Park TBC 42,000 Under Construction Q2 2016 Todd Property Lombard Lane Lombard Lane 1,500 Under Construction Q4 2016 Cook Strait Properties Cuba Mall Wellington CBD 745 Under Construction Q1 2017 TBC Queen Street TBC Under Construction Q3 2017 Venture Consulting Ltd Cinema Complex CHRISTCHURCH Pegasus BNZ Centre (Stage 2) Prestons Shopping Centre (Stage 1) Pegasus 1,500 Under Construction Q4 2016 Todd Property Limited Christchurch CBD 18,600 Under Construction Q4 2016 Lichfield Holdings Limited Ngai Tahu Property Group Limited Marshland TBC Proposed Q1 2017 ANZ Centre Christchurch CBD 1,700 Under Construction Q1 2017 CHC Properties The Crossing Christchurch CBD 14,000 Under Construction Q1 2017 Crossing CBD/Karen Walker/Barkers The Terrace (Stage 1) Christchurch CBD 2,562 Under Construction Q1 2017 Hereford Holdings West Melton 2,000 Under Construction Q1 2017 James Lloyd Developments Limited GP Mainland Limited West Melton Shopping Complex New Retail Hub, 87 Riccarton Road Riccarton TBC Under Construction Q2 2017 Christchurch CBD 911 Under Construction Q4 2017 Hereford Holdings Hornby 22,000 Under Construction Q4 2016 Shopping Centre Inv Ltd Styx Centre Belfast 20,000 Proposed Q3 2018 Calco Developments Ravenswood Ravenswood 8,000 Proposed TBC Infinity Investment Group CBD 200 Under Construction Q4 2016 Louis Vuitton Frankton 3,000 Under Construction Q4 2016 Private Developer The Terrace (Stage 2) The Hub Hornby QUEENSTOWN Marine Parade (Eichardts – Extension) Remarkables Park "Entertainment Precinct" – Stage 2 Pak n Save, Shotover Park Frankton ~6,000 Under Construction Q4 2016 Foodstuffs South Island Limited 81 Beach Street (Ex – ANZ) Queenstown Central 450 Under Construction Q4 2016 Redson Corp Holdings Limited Marine Parade (Eichardts – extension) Queenstown Central 600 Under Construction Q4 2016 Skyline Investments Limited Frankton 800 Under Construction Q1 2017 Remarkables Park Limited Remarkables Park "Market Street" Stage 2 – Remarkables House 23-27 Shotover Street, ex Worldbar site Queenstown Central 500 Under Construction Q2 2017 Boyd Corp Limited Queenstown Central (Stage 1) Frankton 11,300 Proposed Q4 2017 Private Developer Five Mile (Stage 2) Frankton 7,650 Under Construction Q1 2017 Private Developer Remarkables Park "Market Street" Stage 3 – Wyndham Hotel Frankton 520 Planning Q2 2018 Safari Group Tauranga Crossing Stage 1 (Bulk Retail Centre), 1/5 Taurika Drive Tauriko 17,800 Under Construction Q3 2016 Tauranga Crossing Limited Tauranga Crossing Stage 2 (Cinema Complex), 1/5 Taurika Drive Tauriko 37,000 Proposed Q2 2018 Tauranga Crossing Limited Palmerston North 2,700 Construction Q4 2016 Brian Green Properties (Palmerston North) Ltd TAURANGA/MT MAUNGANUI PALMERSTON NORTH 126-150 Rangitikei Street NAPIER/HASTINGS Village Exchange MidCity Plaza The Park Megacentre Havelock North 942 Under Construction Q4 2016 Lowmac Properties Limited Napier TBC Under Construction Q1 2017 TBC Hastings TBC Under Construction Q4 2017 Caboo Properties Limited Source: Colliers International Research 16 Commercial Bay Auckland CBD, Auckland Demolition is now underway at Commercial Bay, the $681 million development at the former Downtown Shopping Centre site. Owned and developed by NZX Listed Precinct Properties, the complex will include a three level retail precinct and is expected to open by October 2018. The 18,000sqm of retail will consist of 100 shops including a flagship store for international retailer H&M. 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