Challenge or opportunity in Newmarket?

  • Opinion
  • March 14, 2017
  • Paul Keane
Challenge or opportunity in Newmarket?

Three issues have been bugging me over the last week or so, two of which I want to discuss today. The third I will leave for a future date as it deserves a more in depth discussion. In the meantime, I have questions about two major companies…

My first issue is with Spark, formerly known as Telecom

I really wonder how this company can keep trading. Now that seems like a pretty aggressive stance doesn’t it? Well yes maybe, but let me explain…

Last Monday I ordered a new broadband supply for my private internet connection. In the space of a week, Spark have managed to kill my internet service at home; I’m still waiting for a new modem to be delivered; and despite discussions with five different people, it has been near impossible to get any sort of reasonable response from this so-called "service provider".

All the while I am still being charged for a service I am not being provided with!

Is this incompetence? Absolutely, and what can we as customers do about it? It's impossible to complain as waiting to talk to somebody is harder than reading one of Donald Trump’s tweets! How on earth does this company maintain its share price?

The other major company of concern remains The Warehouse Group

I discussed this a few weeks ago and signalled concerns over their performance. We now discover that their first six months results were in fact really bad and in a disclosure interview produced in The Herald over the weekend, the new CEO tried to suggest it was mostly down to competition from online retailing! Seriously?

What troubled me from this weekend’s statement was the confirmation that they were selling their Newmarket, Auckland property. This site has been in their property stable for years and is what one could call ‘prime’. In fact, it’s a major redevelopment opportunity, and The Warehouse Group had already received resource consent for a mixed-use project to include apartments, a hotel, offices, and retail to include their own stores.

This would have been a $200 million project with retail as only one piece of the puzzle, so it’s understandable that The Warehouse Group put the site up for sale last year on the basis that they remain as a tenant in the completed development. What’s changed now is that The Warehouse Group are selling the property on whatever basis the new owner wants: they won’t necessarily stay as a tenant in the long term.

For much of its history, The Warehouse Group has thrived in low-cost operating conditions: low land value sites, where the company can pay a pittance in rent. The landlord has to be willing to accept this, either because of the strong tenant covenant or because they get spinoff benefits with higher rents for shops next door. But land values in Auckland are much higher these days, especially in the inner-city areas like Newmarket and the CBD. These areas are rapidly growing, with residents who should be great customers for The Warehouse Group: young, tech-savvy and cost conscious. Is the company really giving up on these areas? What about a smaller, metro-focused format, as the supermarkets are using to great effect?

So why are they selling?

Is the group really so scared of online shopping (Amazon in particular), or is this just to divert our attention from the fact that they are trying to boost their results by selling assets?

The Warehouse is a major NZ retailer. Despite having tough times, it has a major place in NZ retailing and must reposition itself quickly. Selling off property assets and showing a white flag in the face of online shopping won't achieve repositioning in the market place!

 Paul Keane is a registered property professional and has vast experience in New Zealand’s commercial property industries. He provides retail and property consultancy including development management to many New Zealand property owners, developers and city councils. This post originally appeared on RCG's blog.

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