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Retail sales growth might be falling but Colliers International’s latest Retail Market Indicators Report says there is still strong demand for shops in prime locations in the main centres.

Colliers’ research director Alan McMahon says the demand is coming from Australian retailers in particular. “Many Australian retailers are already well represented in their local market and view New Zealand as a natural extension of their existing business.

“Retail assets have been high on the shopping list for major overseas investors, who have bought more than $1 billion worth of centres in the past three years.”

The report was launched at a Colliers International research function where Building and Construction Minister Shane Jones made policy announcements on simplifying and easing the consent process.

McMahon says although the latest figures from the Property Council of New Zealand’s investment index show returns to New Zealand retail investors fell from 24.23 per cent in the year to December 2007 to 19.7 per cent in the year to March 2008, they were still higher than the returns to investors over all the country’s commercial property sectors.

He says instead of dwelling on the negatives in the retail sector, it is fairly apparent growth for investors will continue from population drivers. “It is a better pointer to where retail investment, and potentially good returns, will be focused.

“Using Statistics New Zealand’s medium projections, 62 per cent of New Zealand’s projected population growth of 905,000 people between 2006 and 2031 will be in the Auckland region. During this time Wellington region’s population is expected to grow seven per cent and Canterbury’s 11 per cent, so it is not hard to see where demand for new shops is going to be.”

In the Auckland market, McMahon says the battle of the bridge takes on a new meaning with the completion of two new retail heavyweights on either side of the Auckland landmark.

Kiwi Income Property Trust’s (KIPT) four-stage Sylvia Park opened its doors in mid-2006, with the final retail stage opening in June last year. The 70,000 sq m centre is home to more than 200 local and international brands and includes anchor tenants, Warehouse Extra, Foodtown, Pak ‘n Save and Hoyts. A $200 million stage five is about to get underway which will, upon completion, provide up to 45,000 sq m of net lettable office space in four mid-rise buildings along Mt Wellington Highway.

“Sylvia Park is now undeniably one of Auckland’s premier regional shopping centres,” says McMahon. The mega centre turned over $322 million in the 12 months to January, one of the first centres in New Zealand to achieve more than $300 million. “Considering stages three and four opened in March and June last year, and more than 50% of the stores had yet to complete a full year of trading, this is no mean feat.”

Westfield Albany is also about 70,000 sq m of which 53,000 sq m is lettable retail space. The mall is home to more than 140 specialty stores as well as major tenants Farmers, Kmart, New World and SkyCity Cinemas. Further expansion of the $210 million development is possible, depending on demand.

Retailing the CBD has also been given a major boost in the luxury stakes.

McMahon says despite the controversy surrounding the revamp of Auckland’s golden mile, the long overdue Queen Street upgrade, at a cost of $43.5 million, it has opened the door to a world of retailing opportunities.

“Global retailers continue to venture to new markets looking to expand their empires, and New Zealand is on the list. Luxury retailers Gucci and Louis Vuitton exemplify this, with their commitments to prime retail space in downtown Auckland.”

They have joined local jewellery giant Michael Hill in the newly refurbished 1900’s Imperial and Everybody’s character buildings. It is Gucci’s first store in New Zealand while Louis Vuitton has moved across the street from their previous Queen Street premises. Sunglasses retailer Oakley will take over the space left behind by Louis Vuitton. McMahon says numerous other big name brands want to join the trio in the same neighbourhood.

Further up Queen Street demand for the prime retail space on the ground floor of the yet to be completed Deloitte Centre at 80 Queen Street mirrored the demand for the office floors. Sitting alongside the BNZ’s retail will be Australian-based True Alliance’s concept stores for major brands across 621 sq m. The four brands will pay rents of between $1200/sq m and $2800/sq m.

“It is not only the high-end international retailers who are trying to separate us from our money,” says McMahon. Calvin Klein, Peter Alexander, Cotton On, Tarocash, Kikki K and JB Hi-Fi have all secured space in Auckland’s CBD in the past year. Large format retail centres have welcomed Reece Plumbing, Norman Ross and Pet Barn, while Timberland, Valley Girl, Playboy, Kookai, Oroton, Witchery and General Issue have set up shop in centres across the city.

Measured by the rent retailers will pay, McMahon says Queen Street continues to rival Wellington’s Lambton Quay as New Zealand’s premier retail destination.

“A 49 sq m shop at the junction of Vulcan Lane and Queen Street illustrates how demand is pushing up rents in prime spots. A new jewellery retailer is paying nearly $4000/sq m for a new lease - about 40 per cent more than Andrea Biani, the previous tenant, paid. Other small shops nearby are paying $3200/sq m-$3500/sq m.”

McMahon says there is no universally understood or accepted method of comparing rents of specialty shops of different sizes. “Unit metre frontage (UMF) or a zoning system are the nearest, which makes comparison difficult, but the general picture is clear. Most selling is done in the front 10 to 15 metres of the shop, and that is what retailers will pay for.”

However, New Zealand’s retail rents pale into insignificance when compared to the cost of retailing along the world’s most prestigious shopping strips.

Colliers International’s global research shows New York’s infamous Fifth Avenue, which year after year has set the benchmark in terms of luxury retailing, takes the top spot with rents closing in on NZ$23,500/sq m. The prime stretch between 49th and 59th streets, home to uber retailers such as Cartier, Gucci, Versace and Tiffany & Co, has once again managed to hold off stiff competition from other fashion capitals around the globe.

Paris’ Champs-Élysées at NZ$20,905/sq m, Moscow’s Tverskaya at NZ$20,900/sq m, London’s Bond Street renting at NZ$19,830/sq m and Oxford Street at NZ$14,950/sq m complete the top five retail destinations.

McMahon says while London, New York and Paris have long had world-renowned retail strips, it is the emergence of very expensive retail space in Moscow, St Petersburg, Athens, Kiev, Prague, Berlin, Delhi, Belgrade and Istanbul that demonstrates the maturing of emerging economies, that are home to a large number of relatively middle class consumers.

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