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WELLINGTON RETAIL 2008

1 OCTOBER 2008

LOCATION, LOCATION

Consumer retail spending has slowed considerably in light of the high interest rate environment in New Zealand and encouraged retailers to re-consider the importance of being located in the best retail premises that offer high pedestrian counts, low vacancy rates and a quality retail environment. Wellington’s CBD precincts are performing well under these criteria versus the outer Wellington shopping precincts where vacancy rates are increasing. The demand for quality premises and an “up-to-date” retail environment is reflected by the fact that throughout Wellington, it is the attractive, more expensive retail environments which are experiencing very low vacancy rates and strong enquiry, whilst the less attractive and older environments, which tend to be outside of the CBD, are experiencing a rise in vacant premises and weaker enquiry.

The CBD precincts are however, to some extent, receiving legislative protection that is hindering the potential growth and development of the outer Wellington retail precincts.

Lambton Quay remains Wellington’s premier retail location, commanding the highest rents and generating the region’s highest pedestrian counts according to the Wellington Pedestrian Count 2007 carried out by the Property Institute of New Zealand in November last year. Eight out of the top ten retail spots with the highest pedestrian counts fell within the Lambton Quay precinct with the survey counting approximately 66,000 pedestrians per hour in total in the Wellington CBD, down 5% from the 2006 count.

 

 

The latest Wellington Retail vacancy survey carried out by Bayleys Research has provided a varied result with the overall vacancy rate in the CBD precincts falling to the lowest levels in the past five years whilst the outer Wellington suburbs have experienced an overall increase in vacancy.

In central Wellington vacancy rates have fallen for the second consecutive year to sit at 3.1%, down considerably since the peak levels reached in 2006 at 5.4%. Subsequently, in 2007 the vacancy rate fell by 1.7% to 3.7% and in 2008 fell a further 0.6%. The drop in the vacancy rate over the 2007/08 period represents a strong uptake of retail property in the CBD precincts over the last 12-14 months. This is due to exceptional growth in local retail businesses over the last few years and an increasing number of Australian retailers seeking expansion within New Zealand’s prime retail locations.

Vacancy fell in three of the four precincts surveyed, being Lambton Quay, Courtenay, Cuba and the Willis precincts. The highest precinct vacancy rate this year was just 4.2% in the Willis Precinct.

Lambton Quay

In the Lambton Quay precinct, the vacancy rate increased from 1.1% in the past year to 3.6% in 2008 due to an increase in retail premises on Featherston Street, between Balance Street and Hunter Street, which held the majority of the precinct’s vacancy. The survey counted one vacancy on the Lambton Quay strip where the previous tenant relocated just two doors further down. It is unlikely that these premises will remain untenanted for very long given the strong enquiry levels for Lambton Quay premises and that it can take up to 12 months or more for leasing opportunities to arise on the strip.

The strength of the Lambton Quay precinct has resulted in expansion of retail opportunities on the streets connected to Lambton Quay as developers include retail elements to mixed use buildings. The new IRD office building at One Featherston St which is currently under construction will have a ground floor retail component and will add a few prime retail units to the precinct’s inventory. The retail offering on Featherston Street is generally on the increase as new retail premises are rolled out further along towards the railway station.

A few retail units in the precinct have been absorbed by the reconfiguration of the Borders store at Capital on Quay. The premises were transformed from their previously secondary configuration which had multiple tenancies over two levels of the mall - which proved difficult to lease – to one large, two-level premium retail premises. The current store is a much larger than average-sized store for Lambton Quay with a total of 2,029m² of space accessed on both Lambton Quay and Level 1 of the mall.

The Wellington City Council (WCC) is playing their part in creating an attractive and quality retail environment and is currently undertaking a $3.2 million aesthetic overhaul of Lambton Quay to give the street a more elegant look whilst improving pedestrian safety and making provision for easier access to public transport.

 

 

Courtenay Precinct

The Courtenay precinct with the lowest vacancy rate just below 1% has fallen from 1.5% last year having only one premise available on Courtenay Place and three premises which are currently under refurbishment. The precinct is renowned as the city’s entertainment hub, having streets lined with cafes, restaurants and takeaways occupying 43% of the precinct’s total number of retail units.

Rental growth in the Courtenay precinct has continued to meet expectations with an overall increase in the rental bracket over the last year of approximately 11% to sit within the current rental range for premium space between $900 and $1100 per square metre. The low vacancy rate and strong enquiry in this precinct will continue to support future rental growth.

Willis Precinct

The Willis precinct is a popular location for fashion retailers and has experienced strong tenant uptake over the last 12 months which has resulted in the vacancy rate falling by nearly 2 percentage points to sit at 4.14%. The majority of the vacancy is located on Manners St. The Willis precinct inventory has been expanded this year with the inclusion of 16 new prime retail units in the Chews Lane redevelopment with the majority leased prior to completion of the project. The project, undertaken by Willis Bond & Co, was completed in June 2008 and incorporates retail, office and residential accommodation.

The street level retail offering is a commendable tenant mix including high quality fashion, footwear and travel brands along with a number of eating and entertainment establishments. Amongst the tenant mix are high end fashion brands Calvin Klein, Kimberleys, Veronika Maine, Farrys Menswear, Stax, Identity, Stable and Hush Puppies fronting onto Willis St. Along Chews Lane are travel brand Flight Centre, Coffee Club, Midland Sushi, Fresh Take, Emporio Gotham and the new 3Cs bar and restaurant. The gross rental rates in Chews Lane are at the high end of the precinct’s rental rate range reaching $1,500psm in some cases, particularly for the fashion retail premises fronting onto Willis St. This is a reflection of the exceptional quality, style and location of premises that are demanded in Wellington’s CBD.

 

 

Premium rental rates in the Willis precinct have not moved since last year and are currently between $1,000 and $1,500psm gross. The rates for secondary premises have shifted to a wider bracket which reflects a larger gap in the quality and location of secondary space available in the precinct. Secondary rental rates range from $400 to $1,000 per square metre gross compared with 2007 where they ranged from $500 to $700 per square metre gross.

Future plans within the precinct include the possibility of redesigning pedestrian-only Manners Mall to allow buses and possibly private motorists to travel through from Courtenay Place to Willis St and it could also be suitable for a light rail system. The WCC is undertaking consultation on a draft proposal plan which aims to reduce the amount of time it takes to travel from Courtenay Place to Willis St and also create several new car parking spaces on Dixon St, Lower Cuba St and Wakefield St.

Cuba Precinct

The Cuba precinct’s vacancy rate was 3.3% in 2008, down from last year’s vacancy of 4.7%. The majority of the vacancy is in the James Smith Corner Arcade.

The prime section of retail real estate in this precinct is Cuba Street running from Wakefield Street south through to Webb Street. Cuba Mall is a streetscape retail environment dominated by two major retail categories, namely cafés, restaurants and takeaways which occupy 29%, and fashion retailers occupying 18% of the precinct. The Mall is one of the busiest streets in the CBD with the pedestrian counts surveyed in three spots along Cuba St ranking in the top five spots in the CBD (excluding Lambton Quay).

Both premium and secondary rentals have grown over the past year. Premium space is currently in the range of $850 to $1,200 per square metre gross compared with $900 to $1,100 per square metre gross last year. Rents in secondary locations currently range from $700 to $850 per square metre gross, which is a rather significant increase from the $400 to $600 range experienced in 2007.