We look at the key trends in the New Zealand retail property market in 2020 and what to expect in 2021
The economic backdrop for New Zealand's economy and the confidence provided for consumers to increase their spending levels have surprised to the upside over the second half of 2020. This paints a more positive expectation for 2021 than originally forecast at the end of the first half of 2020.
While there are still many uncertainties and the chance of disruption remains, the initiatives from the government and the Reserve Bank have provided a support base for New Zealanders. With some higher expectations on job security and asset price rises, this has flowed through to many retail spending measures showing higher levels of activity at the end of 2020 than at the end of 2019.
Retail sector trends prevalent pre-Covid-19 have been accelerated, with online spending the primary example. What was originally expected to occur incrementally over time, happened instantly and on an unprecedented scale as more and more New Zealanders were forced online due to lockdowns. A study conducted by NZ Post and Datamine showed that over 170,000 Kiwis shopped online for the first time in the first half of 2020. Retailers that had already adopted a more omni-channel experience for their customers benefitted the most. Retail services such as supermarkets, which were classed as an essential service, also benefited. Retailers that are not equipped for a more online world are likely to struggle in the future retail landscape.
Lease agreement conditions and rental payments will remain a significant focus for landlords and tenants moving forward.
While there has been some respite in rental growth, some declines and some incentives for retailers in 2020, more positive economic conditions, which may gain further pace in late 2021, could see a reversal in this trend. This would be, however, for prime retail premises only, as there will be a rise in vacant shops. This is already showing up in our vacancy surveys across New Zealand. Positive catchment demographics will be fundamental and the difference between not surviving or thriving in the years ahead.
While Reserve Bank measures such as easing monetary policy and undertaking a massive quantitative easing programme have been highly effective in lowering interest rates, boosting market liquidity and stimulating investment activity, lending has not always been readily accessible. Further, purchasers are still looking to mitigate risk while they maximise their returns. This will mean a competitively cautious investment environment in 2021, with high calibre retail premises with strong tenant covenants and long lease terms the more sought after. The potential for lending to become more available for retail property purchasers in 2021 if more positive economic conditions emerge here and abroad, could boost this trend further.
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