Justin Kean, who is director of research at commercial property specialist JLL, explains how the Auckland market is seeing a substantial amount of new retail mall space brought to the supply pipeline.rn
This new retail mall space is coming down the supply pipeline in the form of new integrated retail, as well as extensions to already dominant retail malls. After what has been a seven year lull in supply to Auckland’s retail mall sector, the market will see a huge tranche of retail floor space coming online over the next five years.
The completion of Westfield Albany in 2008 was the last major addition of significant retail floor space to the Auckland mall stock base. Between mid-year 2015 and 2020, total additions to space will likely equate to a further 140,000 square metres of integrated retail; a figure that is warranted by Auckland’s buoyant market, increasing demand for retailers and sound economic story.
There are two key factors that drive the development of new retail space: firstly, confidence in the underlying market and secondly, the availability of capital to undertake the development. Retail assets in the form of shopping malls and other large formats are now at the forefront of investors’ minds, which has resulted in an all-time high for transaction activity in the sector. The continued sound performance of large retail shopping centres that are able to dominate their catchment and deliver sustained income streams has encouraged intense competition for investment grade product. Sovereign wealth funds, pension funds, and high net worth individuals with excess capital have invested in the retail space, and are likely to continue to do so through 2016.
Funding for a large quantity of these new retail mall developments that are coming into play is being sourced from institutional or international capital. Singaporean sovereign fund GIC, for example, is funding Scentre Group, which is likely to be pursuing extensions at Westfield 277 Newmarket and Westfield Albany. Precinct, one of New Zealand’s listed property investors, is funding Downtown Shopping Centre and Canadian pension fund PSP Investments are likely to be behind any further expansion at Bayfair Shopping Centre. The underlying story is that each of these organisations have sizeable capital resources to spend.
From 2015 to 2020, large additions to retail will total 140,000 square metres, against a total supply of 1.185 million square metres. This indicates that total integrated retail space is anticipated to grow between 10 and 12 percent from 2008 to 2020. This is unlikely to create an oversupply situation. However, over a similar timeframe (2006 to 2023) Auckland’s population is anticipated to grow some 28.7 percent. This means the market growth is there to support this expansion of retail. We require this new retail space to not only meet demand of Auckland’s mushrooming population growth, but to also allow international retailers and brands to enter the New Zealand market.
International retailers coming into New Zealand need modern and often speculative build space in order to accommodate their very specific needs. Within the Auckland market, we don’t currently boast the type of retail space international retailers require on mass. The announcement of fashion giant H&M opening their first store in Sylvia Park is a really good example of how international retailers will only come in to New Zealand when they’ve got the appropriate space to occupy.
This year we have seen a range of new international retailer entrants to the market with the opening of David Jones, French Connection, Topshop, Tiffany & Co and Chanel, and this is probably just the tip of the iceberg.
The outlook therefore remains positive for the retail sector, as there’s a significant supply pipeline being met by a long-term growth story, as well as a solid level of demand from exacting international retailers who will only put their brands into the very best space.
This content originally appeared in the December 2015/January 2016 issue of NZRetail magazine.