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Bayleys Research


NATIONAL RETAIL ANNUAL 2011

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Market awaits the return of the consumer

Soft consumer spending has continued to weigh on the retail property sector over the last 12 months. With consumers still prioritising debt reduction over expenditure rental levels have remained under pressure with the exception of only units in prime shopping areas.

The result of continued downward pressure on rents and ongoing softening in yields has been a further reduction in capital values. The June 2011 quarter results from the Investment Property Databank (IPD) performance indices show that capital values fell by 3.7 percent over the year.

The latest figures however are an improvement on those which were recorded in the year to June 2009 when capital values retreated by over 12 percent. The latest figures suggest that a majority of the adjustment in rents and yields, which will occur in the current cycle, have now been made.

Giving further support to the opinion that the market is moving into recovery phase is the latest retail sales statistics released by Statistics New Zealand (StatsNZ). These figures show, that, while still weak, consumer spending has gathered momentum over the first half of 2011.

As the graph above illustrates there is a close correlation between spending and the performance of the retail property market. The marked reduction in consumer spending from late 2006 was mirrored by a sharp adjustment in retail property values. The decline in values slowed through the latter half of 2009 and early 2010 as consumer confidence seemed to have increased only to fall away again throughout the final three quarters of 2010. As yet the latest increase in spending has not been reflected in capital values, however, should the increase in spending be sustained it is increasingly likely that property owners will see the benefit.

While capital values have continued to decline total returns (income return plus capital gain/loss) remain in positive territory. According to IPD’s June figures the sector produced a total annual return of 4.2%. Total returns have been positive since the March quarter of 2010 having spent the previous year in negative territory.

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