How strip retail can beat back Amazon
Total Property - Issue 1 2018
Is high street retail real estate worth it? That’s the question on the commercial property market’s lips, as mall operators flex their muscles and online retailers line up for an even bigger slice of New Zealand’s annual consumer spend.
Amazon's arrival in Australia is rocket fuel for online shopping in the region and many analysts predict it will accelerate the shift away from traditional bricks and mortar retail.
The online giant is keeping mum on its plans for New Zealand, but even if a network of fulfilment centres across the north and south islands is not on the cards, Amazon’s ability to disrupt the New Zealand retail market from across the Tasman should not be underestimated.
The company spent much of the year leading up to its Australian launch collecting price points on everything in the market and researching regional shopping habits, and it plans to roll out its full set of offerings for Australasian customers.
Concerned commercial property investors should resist pressure to pass over the sector or withdraw from it. Strip retail still offers value – especially for those who are active in the market and can anticipate or quickly adapt to new trends.
First Retail Group managing director Chris Wilkinson says strip real estate is always worth the attention of investors, with good locations able to command a premium.
“Profile is important for the big brands and they attach a great deal of value to it. The luxury brands proliferate in these locations,” he says.
“In Australia, lower cost retailers such as Chemist Warehouse and Uniqlo are taking secondary space in basement levels or first floor sites, in order to get close to prime locations. We're likely to see this happen in New Zealand, too, as demand for prime sites intensifies.”
The pressure from online retail will force retail landlords to reinvigorate their assets and tenant mix.
While online retail businesses have the privilege of unlimited space, retail landlords must ensure every centimetre of their asset works towards making a profit. Retail landlords can’t stop Amazon but they can manage what impact it will have on their assets and be better prepared for any future headwinds.
E-commerce is expected to have minimal impact on retail strips that offer experiences and services that can’t be easily replicated online and attract high foot traffic.
Notable examples of “Amazon-proof” retail strips include:
• Lower Queen Street, in Auckland, which is home to high-end luxury goods stores such as Prada and Louis Vuitton and the under construction Commercial Bay retail and dining lanes;
• Lambton Quay and Willis Street, in Wellington, which is home to David Jones and Beauty Bliss; and
• Cashel Street, in Christchurch, which boasts H&M and the newly opened retail hub The Crossing.
Demand for real estate in these locations is high, with rental rates of $4,000/m2 not uncommon. But thriving retail opportunities can be found elsewhere.
The Fortieth & Hurstmere dining lane in Takapuna, Auckland, is a good example of how developers can add value to strip retail properties outside CBD locations by offering a curated retail offering that has food and beverage at its heart.
The retail lane was turned into a trendy dining hub in 2015. The laneway concept, which was inspired by similar dining lanes in Melbourne, New York and Europe, uses bricks reclaimed from the Christchurch earthquake and has shared outdoor seating areas.
It is currently home to seven leading eateries, has boosted the area’s retail experience and encouraged lengthier stay times.
The prosperity of these shopping strips can be attributed to several factors:
• The increase in residential developments around retail strips and transportation hubs;
• Population growth;
• A surge in tourism visits; and
• The push for curated, convenience-focused shopping experiences.
“Successful strips will be the ones that have differentiated retail offerings with a good diversity of brands and a clustering of like categories,” Mr Wilkinson says.
“Retailers and landlords need to deliver unique shopping environments that reflect their markets - not the generic offer too many brands default to. A good mix of food and beverage stimulating daily destination value, combined with ease of accessibility, consistency in hours and strong amenity value complete the recipe.”
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