The recent purchase of the Fashion Island shopping centre in Tauranga by Cotton On Group received little publicity, but is quite a significant move in terms of shopping centre ownership. Why would a retailer buy a shopping centre in a regional New Zealand location?
A trend becoming apparent
The trend for retailers to purchase or develop shopping centres is becoming more apparent. The Warehouse Group developed the 22,700m2 Silverdale Centre, anchored by their own brands and Countdown, and then sold it off to Stride Property. James Pascoe Group, who own Farmers and Whitcoulls, are now developing their own centre next door.
Foodstuffs are long-term owners of most of their supermarkets. Progressive Enterprises are known for leasing their supermarkets rather than owning them, but they have been quite involved in development, especially since the GFC. They have developed several supermarket-based centres across the country, not to mention the very impressive Cider Building and Vinegar Lane in Ponsonby. The Cider Building was sold for $93 million earlier this year, whereas Progressive sold off Vinegar Lane as 30 small freehold sites, many of which are now seeing buildings pop up.
Large format retailers often own their own sites, and as the years go by and land values increase, they can find themselves in the position of having land which could be developed much more intensively.
This is especially true in Auckland, and The Warehouse Group has sites in Newmarket and Balmoral which could be redeveloped for a mix of uses in the future. They put the Newmarket site up for sale earlier this year, although they’d like to remain as a tenant in the final development, which could include retail and office space, plus apartments and a hotel.
A shift from the norm
These examples and others suggest that large format retailers, and “anchor” retailers, do get involved in property development and ownership. However, to see a fashion retailer buy a centre is certainly a shift from the norm. Cotton On Group are very successful retailers, with eight brands and more than 130 stores in New Zealand alone.
Fashion Island has struggled as a retail destination, and a major Cotton On presence there will help to reinvigorate it.
The approach of buying a property with vacancies cheaply, and adding value by leasing up the vacant space, is a tried and true one. Cotton On bought the centre for just $6.25 million, so they’ll be coming out ahead once they put their own stores in. But it’s ironic that a ‘fast fashion’ retailer, specialising in value products and relying on rapidly changing fashion trends, is investing in something so permanent as a shopping centre!
Top-tier shopping centres in New Zealand are usually owned by major corporates – a few years ago, these were Westfield, AMP, and Kiwi Income Property Trust, although the dominant names are now changing. For lower-tier centres, there is a much larger variety of owners.
Name changes, and a general shift in ownership to companies that have not previously had major retail interests, has certainly changed outlook for shopping centre ownership in this country.
Will we see more purchases from Cotton On? Perhaps, if they see other opportunities to add value. Will it be a gold rush, with Cotton On buying up properties across New Zealand? Probably not.
It all demonstrates the significance of retail property for property investors. The benefit of owning retail centres is apparent in that traditionally they have secure tenants with long leases, and a customer base that is supportive. The longevity of shopping centres is therefore secured. However, all a bit odd for Cotton On to purchase Fashion Island!