New retail trends get consumer buy in
A positive sentiment is surrounding the New Zealand retail scene with consumers and property owners feeling confident about the year ahead. Consumer confidence has bounced back having dipped following the national election and this has been followed by a lift in spending.
The results of Bayleys Research’s latest sentiment survey shows that the property sector also has a positive view of the year ahead with both rental and capital value increases anticipated.
The strategy of providing a wider range of experiences within retail environments, with the provision of high quality food and beverage options alongside entertainment amenity appears to be paying off. Spending within the hospitality sector is on the rise, while the increased foot traffic which these “Amazon proof” attractions promote provides positive support to surrounding retail stores.
Consumer confidence bounce sets positive retail scene
Consumer confidence has bounced back having fallen in the latter part of 2017 when concerns over the election and subsequent change of government weighed on sentiment.
The latest ANZ-Roy Morgan consumer survey shows confidence to have climbed close to levels which were prevalent just before the September 2017 election.
The uncertainty which followed the election of the new Labour led government has abated as its policy priorities have been clarified. Putting political considerations to one side other factors which impact confidence remain positive. Unemployment has fallen to historically low levels, the housing market has stabilised and interest rates continue to sit at low levels.
The rebound in confidence will be good news for retailers with the positive sentiment readings following strong consumer spending over the closing months of 2017.
Spending across the retail sector rose by 0.5% in December 2017 compared with the previous month according to electronic card spending data collected by Statistics New Zealand. This was the fourth consecutive month in which spending had increased. Total spending on cards over the final quarter of 2017 was $17.3 billion up 3% or $505 million on the same period in 2016.
Major drivers of the increase in spending have been the hospitality and consumables sectors. Spending in both increased by $51 million in the December quarter when compared with the preceding three months. This equated to a 1.8% increase in hospitality spending and a 0.9% rise for consumables.
Hospitality sector enjoys strong run
Spending within the hospitality sector has been constantly increasing for some time. Electronic card spending data shows total spending within the sector to have reached almost $11.7 billion in 2017 an 83% increase on 2010’s total spend.
The increase in spending reflects a significant trend within the retail sector. In the face of growing on line competition, retail property owners have increasingly looked to lifestyle, dining and entertainment offerings to draw foot traffic.
Owners of malls and properties within prime strip locations, in particular, have looked to expand and upgrade the hospitality options available to consumers. A prime example is the Scentre Group which has recently confirmed details of its $790 million redevelopment of its Newmarket Mall. One of the major elements of the project is the inclusion of a rooftop lifestyle, dining and entertainment precinct. This will include a new, state-of-the-art, Event Cinemas complex offering V-Max and Gold Class, it will also, according to Scentre Group, encompass some of the country's finest food and beverage experiences in a vibrant outdoor environment.
Outside of the malls, laneway developments which provide a range of dining options have become increasingly popular. There are a large number of examples from Auckland’s North Shore to the South Frame in Christchurch. The greater range of dining options draws people to the area which is clearly of benefit to neighbouring goods retailers. The increased foot traffic brings vibrancy to the area creating an atmosphere which cannot be replicated on line.
Positive sentiment surrounds retail property market
The results of the latest Bayleys Research retail property sentiment survey, conducted in December, point towards growth in rentals and capital values over 2018.
On a nationwide basis 45% of respondents expected rents to increase, with 13% expecting the increase to exceed 5%, 41% believe rents will remain stable with just 14% anticipating a decline in rental levels.
Expectations for movement in capital values over the year ahead are equally positive with 44% of respondents expecting values to increase with just 16% anticipating a decline in values. 14% of respondents are forecasting capital value growth to exceed 5% over the year.
On a regional basis sentiment is most positive in Queenstown, Tauranga and Hamilton.
Sentiment is most positive within the Queenstown market where approximately 70% of survey participants expected to see both rental and capital values rise. The positivity reflects the towns booming economy, underpinned by a rapidly expanding tourism sector and a surge in construction activity.
The area’s retail sector is undergoing rapid expansion particularly in Frankton, adjacent to the airport, which has seen a number of national bulk retail brands, such as The Warehouse, Countdown, Pak’nSave and Mitre 10 Mega either expand or take occupation for the first time.
Both Tauranga and Hamilton have experienced strong levels of population growth over recent years, benefitting from a flow of people from Auckland. This has obviously impacted positively on retail demand and sentiment towards the retail property sector.
Auckland ranks fifth in both segments of the survey. While retail demand has been bolstered by rapid population growth, driven by record migration, is has also elicited a significant supply response.
Sentiment is more subdue in Christchurch which has also seen a significant increase in retail inventory which will weigh on value growth over the short to mid term future.
Increase in development dominated by Canterbury and the Golden Triangle
Development and redevelopment activity within the retail sector reached record levels in 2017 according to numbers released by Statistics New Zealand.
The value of work consented for new build projects and alterations reached $791 million over the course of 2017 surpassing the previous high which was recorded in 2015.
Development activity fell away as a result of the Global Financial Crisis (GFC) with the value of consents, on an annual basis, being lower than had been recorded in 2007 until 2014. Subsequently however levels of development activity have remained at elevated levels.
Unsurprisingly a majority of the development activity which has occurred in recent years has been within the area known as the Golden Triangle, which encompasses Auckland, Tauranga and Hamilton, and within Canterbury.
The Golden Triangle generates approximately 50% of the national GDP and houses approximately 50% of the national population. It is also the part of the country which is seeing the fastest growth in terms of population. By 2043 it is projected that the share of the national population living in the area will have reached 55%.
It is however the Auckland region which is driving development activity. In support of the region’s booming population, major mall owners have embarked upon large scale development and redevelopment projects.
Recent years have seen the development of the NorthWest Centre, a major expansion of Lynn Mall and Sylvia Park, the latter of which is to undergo further significant growth over the next three years. The Scentre Group is to start redevelopment of its Newmarket complex in the near future and also has expansion plans for its Albany and St Lukes centres.
As the chart above shows, the value of consents generated within the Auckland region last year accounted for 43% of the national total. The other Golden Triangle regions, Waikato and Bay of Plenty were responsible for a combined 16% of the total.
Development within Canterbury has formed a significant proportion of the national total on an annual basis since 2011. Initially much of the new construction was centred on the outer suburbs and growth areas such as Rolleston.
Over the last two to three years however, development within the CBD has dominated the new supply with complexes such as the Crossing emerging.
The value of consents generated within Otago totalled just over $48.7 million in 2017 due primarily to the surge in development activity within Queenstown which has been apparent over recent years.
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