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Growing need to revitalise Rotorua's CBD as fringe areas flourish

Tags: Commercial Research Rotorua

Business conditions and economic activity in Rotorua are set to increase this year but, with the bulk of this activity expected in the fringe areas, revitalising the CBD back to its former glory will take priority, according to new research.


Analysis from real estate agency Bayleys has revealed confidence levels are high among local businesses, with owners expecting increases in profits and in turn to be able to employ more staff and invest in their businesses in the year to December 2015.

However, this activity is predominantly in the fringe areas of the city, which are experiencing greater activity than the CBD. The trend is due to a sharp contrast between ‘prime’ and ‘secondary’ property, with a key issue being the older stock located in the CBD requiring upgrading and seismic strengthening, Bayleys Research national manager Ian Little says.

“A further hindrance for the city centre is approximately 10-15% of the CBD retail is made up of leasehold properties, which are causing problems with vacancies and maintenance,” he says.

In contrast, new freehold retail offerings at the Redwoods Centre and Fairy Springs suburban outlets, developed and built by local developer TPB Properties, have received strong demand from local and out of town investors, Mr Little says.

“With the successful sell down of new units within the suburban areas, there is now a shortage of high-quality, new retail outlets for investors, given that much of the CBD stock is older and of lower quality.” Rotorua Central Mall and Tutanekai St remain the prime retail shopping areas in the CBD, having the highest pedestrian counts in this area. The mall has been redeveloped and has the lowest vacancy rate in the CBD, along with Eat Streat, at the northern end of Tutanekai St and surrounding the Rotorua Tourism Centre on Fenton St.

Rotorua District Council (RDC) is looking at a number of initiatives in its Revitalisation Strategy Design to attract visitors and shoppers back to the CBD, including a proposed green corridor which will link to multi-use bike paths through the CBD.

“There is no quick fix – council plans to rejuvenate the CBD will take time to generate results,’’ said Mr Little.

“Ultimately, a more vibrant and rejuvenated CBD will attract more businesses and workers and lead to increased retail spend.”

Meanwhile, in Rotorua’s commercial property market, the gap between prime and secondary space continues, with a shortage of purpose-built prime office space.

Rotorua District Council released its earthquake-prone risk assessments in 2013 with high-risk properties having one year to get a building report and five years to remedy, and more time for medium and low-risk properties. Major national companies and government tenants require office space that rates at least 67% or higher, under the New Building Standard.

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“Vacancy rates for average and poor quality space has stayed static at 21.3% and 34.2% respectively and good quality space has 8.7% vacancy. Prime yields have tightened slightly, closing up to between 8-9% as supply is scarce,” Mr Little says.

The industrial sector has continued to be a top performer in Rotorua in the past year – showing the greatest activity, with owner/occupiers successfully competing with investors to buy premises.

Commercial stock performs particularly well if located on or close to a main road and is close to the city, while more remote precincts such as Eastgate Industrial Park, located nine kilometres from the city, have been less successful, says Mr Little. Future growth however, will have to take place further from the city as industrial land supply close to town is extremely limited.

“Industrial investment property remains tightly held in Rotorua, with owners preferring to retain higher running yields from property than lower bank deposit rates.

“Anecdotal reports suggest competition for investment stock is increasing as a result of a lift in buyer enquiry from out-of-town buyers, particularly for good quality stock with strong tenants."

Source: The National Business Review

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