Data from leading real estate agency Bayleys shows that changing consumer habits and the need for bigger floor plates are driving a retail exodus from what was once Dunedin’s heart.
The three undercover shopping malls in George St have been the primary beneficiaries of a ‘reshuffling of the decks’ by some of the larger national/international consumer-goods retailers. This has resulted in vacancies becoming increasingly evident in sections of the traditional ‘golden block’ of George Street bounded by Hanover and St Andrew streets.
Currently there are six vacancies in the ‘golden block’ - which is something not seen in this location for some five years, with traditionally no vacant tenancies in this location…. let alone six.
Secondary – or less attractive retail precincts in Dunedin - which historically have been regular underperformers with their high vacancy levels – are now enjoying a new lease on life.
Many landlords within these areas are becoming increasingly aggressive with their rents, which has resulted in an increase in demand - especially from independent boutiques, clothing and giftware retailers.
In some instances, the rent differential is as much as $500 to $600 per square metre between the prime and secondary precincts, which are literally just around the corner from George St in the likes of Hanover and Great King streets.
The result has seen retail vacancy levels for secondary locations fall, while vacancy levels for the prime locations are increasing. The smaller floor plates on offer in Dunedin CBD have also seen gravitation toward the city fringe by bigger ‘bulk retail’ brands such as Guthrie Bowron and Mitre 10.
DIY decorator and home handyman stores have mushroomed from being corner-store type operations into ‘everything under one roof’ department stores. As a result, they have sought bigger and bigger premises to showcase their product ranges, and have consequently shifted gradually but consistently towards the east over the past decade.
This has had a negative impact on general CBD activity and pedestrian counts. The ample and convenient parking for no charge on these city fringe locations has proven to be a large drawcard for shoppers. The issue of parking meter charges in the CBD is something the council will have to look at, if it is to continue supporting retail activity in the heart of Dunedin
Meanwhile in the central city office market, Dunedin - like many regional centres around New Zealand - is suffering from an oversized CBD compared to the city’s employment capacity. With the greater proliferation of city-fringe office locations, traditional CBD office and warehousing space needs to be reworked to be more meaningful for todays needs.
This process has already begun in the southern part of the CBD around the Vogel St precinct, where many of the character warehouses are being successfully converted into multi-use purposes - including residential dwellings and niche retail or food and beverage outlets.
Office occupier demand is now largely focused on redeveloped mixed-use buildings - with little interest in older buildings built before the early 1980s unless they have been refurbished. For many building owners though, the cost of seismic strengthening on top of the standard refurbishment outlays makes the cost/benefit of such an exercise marginal at best.
Rents in such older and unimproved buildings are generally facing downward pressure in the short term due to weaker business confidence and activity.
The Bayleys research also highlights that Dunedin’sConsents (m2) industrial property market was also running a ‘two speed’ economy based on the quality of the premises and its location. Most of the older leasehold stock is located between the CBD and port area and has been in decline due to a lack of certainty surrounding ground rent reviews. There are no known developments in this area, and much of the older and increasingly tired looking buildings are being offered at low rents.
Tenant demand remains weak and is unlikely to change unless greater certainty on ground leases occurs, or the ability to convert the tenure to freehold occurs. Our market survey feedback notes there is an adequate supply of industrial property in Dunedin. The lack of occupier-demand is more about pricing - especially when older secondary stock is renting for less than half the rents being achieved for prime properties.