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Retail prevails despite headwinds

Despite retail spending falling for the eighth quarter in a row, the sector battles on and there are some glimmers of hope.

Just as households are reassessing spending patterns and being prudent in the high interest rate, high inflation environment, retailers are also rationalising their operations and seeking efficiencies across their business models.

Bayleys’ national director retail, Chris Beasleigh says retail spending is down, turnover is down and naturally, retailers are cautious when it comes to lease negotiations, inventory hold and expansion plans.

“There is an air of wait-and-see out there in the retail sector and some retailers are doing it tough right now.

“Being in the right location to capitalise on footfall, and having optimally-sized premises remains a challenge for many hence there is some movement being noted in the leasing market as retailers and hospo operators look to position themselves where the action is.

“As a general observation, rents are holding but not increasing, however in those areas where there is high vacancy and landlords are competing for tenants, we are seeing wiggle room on rents and flexibility on lease length.”

Beasleigh says retail vacancy is certainly rising and he envisages this to continue as the year unfolds, with the exception of the large format market segment which continues to perform well and has minimal vacancy.

“Our advice to retailers or food and beverage operators considering a move to new premises is to make sure they’re fully aware of fitout costs and have the necessary finances in place prior to searching for space.

“Talk to Bayleys’ leasing team, talk to fitout designers and installers and know the market.”

In Wellington, retail specialist Johnny Curtis says the CBD is showing signs of slowdown off the back of uncertainties regarding council intentions to redevelop the Lambton Quay/Golden Mile and remove on-street parking, and the introduction of cycleways.

“These initiatives have impacted confidence among retailers and prompted some long-standing and prominent retailers to close their doors. They are not prepared to navigate construction zones and potential disruptions so have exited the retail scene.

“However, there is increased activity and interest in retail property outside of the CBD in areas like the Hutt Valley, Porirua, and the Kapiti Coast.” Curtis says rents in the CBD have remained static, reflecting a market that is increasingly focused on tenant needs and demands, while in the surrounding suburbs, rents are heading upwards and look likely to continue on this path.

“Customer demand for convenient access to carparking and other amenities is driving this and the suburbs are proving to be a more attractive option.”

There is a lack of large format retail stock for lease in the inner city, an oversupply of hospo stock given tough trading conditions, while traditional retail stores come and go, “There’s minimal new retail property coming to the market with no large-scale developments or expansions in the wind.”

The Christchurch retail property sector is a two-speed market according to Jesse Paenga, Bayleys director of South Island capital markets and corporate leasing.

“The drop in discretionary spending has seen aspirational level retailers feeling the impact and discount retailers coming into their own, with the new PAK’nSAVE on Main North Road trading well above forecasts and Reduced to Clear in the CBD seeing lines out the door.

“Core hospitality operators have been somewhat buoyed by an uptick in the tourist market, however this will inevitably drop off over winter.”

Paenga says high street rents have remained stable as there is a limited supply of retail space, and a prevalence of stable national or international retailers.

“We expect high street rents to remain firm and potentially start to strengthen towards the back end of 2025, while rents in strong village centres will also hold their own due to steady demand.

“However we expect a decline in secondary retail locations with tenants being unable to keep up, and this trend is likely this to continue until early 2026.”

There’s near-zero vacancy in CBD hospitality space, a lack of secondary retail space in the central city, and virtually no vacancy in the bulk retail sector in the key areas like Tower Junction, Homebase, Moorhouse Avenue and Langdons Road.

“Specialty or hospitality spaces in suburban locations or secondary retail centres are still readily available, with most landlords being amenable to meeting the market.

“With the exception of some space on Langdons Road, there is very little new retail space being developed due to the disparity between build costs and end valuations, so tenants need to make existing stock work for them.”

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