Why you should be hunting for big box real estate

Why you should be hunting for big box real estate

Total Property - Issue 1 2018

Destination retail is in New Zealand’s DNA. Kiwis have long seen the value in shopping for mid-range, low price goods all under one roof. And big box retailers have reaped the rewards, with Mitre 10, Bunnings and Kmart consistently recording strong profit growth.

But even considering the unique retail and cultural environment that has left big box retail in New Zealand largely immune to the pressures felt by the sector globally, big box retailers still need to prepare for change if they wish to avoid becoming “ghost-boxes”.

Forward-thinking big box retail chains are becoming more than just places that stock and sell goods. They are staging immersive, memorable, share-worthy experiences.

In the US, outdoor sporting and camping goods chain Bass Pro Shops has populated its locations with wildlife displays, archery ranges and huge aquariums so customers can try out its products.

Closer to home, Kmart recently changed the format and layout of its Australian stores — positioning the payment hubs in the centre of the stores. This simple move not only disrupted the age-old tradition of paying on the way out, it provided customers with extra incentives to pick up ancillary items before exiting the store.

Kmart’s parent company, Wesfarmers, which also owns Bunnings, has confidence in its approach and in the New Zealand retail scene in general. Kmart Petone, which opened last year, was the chain’s 20th New Zealand store, and many towns are actively lobbying Kmart to set up shop in their areas.

Retail NZ group manager of public affairs Greg Harford says that while large-format retail is an important part of the New Zealand retail landscape and will remain so for years to come “strong competition from online shopping platforms will put pressure on operators to refresh their offerings and improve their customer experience”.

“Convenience is king. Customers want great products, great prices and an in-store experience that is both hassle-free and enjoyable. Getting these factors right will drive success in 2018,” he says.

First Retail Group managing director Chris Wilkinson says there is a growing awareness among large format retail operators of the need to curate their offering, so that like or complementary businesses are clustered together.

He cites the Queenstown Central retail development as an example of where big box retail is heading. The Frankton Flats development, which aims to provide about 20,000m2 of retail space, is anchored by a 4,000m2 Kmart store and supported by a mixture of speciality shops, restaurants and bars.

“Queenstown Central is cutting-edge big-box retail. On a smaller scale, some of the developments in Auckland’s West City are demonstrating best practice in the evolution of big box retail,” he says, adding that there are opportunities for more big box development in city fringe areas experiencing strong population growth, such as the Kapiti Coast and Mount Maunganui.

Big box retail parks, he says, have started to add “daily ritual” businesses, such as cafes, takeaways and gyms, to stay fresh and relevant. “There are also opportunities for health and wellness. Brands such as Chemist Warehouse are likely to be key contenders for space in destination centres in the future,” he says.

Real estate leased to big box brands is also among the most-sought-after in New Zealand. Mitre 10 or Bunnings listings tend to attract investors who might not otherwise buy commercial property, and are seen as secure, long-term passive investments – an opportunity to buy a high-quality retail property backed by a strong covenant.

Demand for such real estate is high.

Last year, an investment group paid $180 million for four properties leased to Bunnings Warehouse in New Zealand and Australia.

The New Zealand property is occupied by Bunnings New Lynn, while the Australia properties are still in the development phase. All were sold with 12-year leases back to Bunnings, with options potentially seeing the lease terms reach 60 years. The stores’ combined areas span 54,000m2, while the blended yield of the properties was in the low-5 percent range.

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