- The return of higher alert level restrictions in the second half of 2021 has disrupted retail sector trading results. However, not all retail sectors are experiencing the same impacts. Essentials services remain resilient and many businesses are structurally more sound, have more of an online presence and/or click ‘n collect services to engage with customers than in 2020. However, store closures and rising vacancies are projected, with the hospitality and entertainment sectors at the forefront. This will likely see overall strip retail vacancy elevated across Auckland for the short-term, which does provide some opportunities for retailers with a longer-term timeframe. Until resolving the lack of foot traffic in the CBD, higher vacancy rates will remain. Suburban markets may benefit from remote working, when Alert Levels allow. Bulk retail premises remain resilient showcased by sub-1% vacancy.
- Smaller pockets of development activity are currently limited, which will assist the rebalance between strip retail supply and demand overtime. Larger scale plans in supportive catchments are proceeding, a recent example is Auckland Airport that is looking to develop a 23,000 sqm outlet centre once retail conditions a more stable.
- Average Prime CBD rentals lifted in the June quarter, the result of new leases for properties within the luxury goods precinct. They are forecast now to run flat over the year ahead. Significant stimulus to increase rents will not arise until border restrictions are relaxed. Rental incentives will continue to be a feature of the strip retail leasing market. Downward pressure on suburban strip retail rents is expected to persist over the year ahead. Bulk retail rents are likely to edge up slightly.
- Investor confidence in the retail sector has improved over the second half of 2021, but investors are approaching each opportunity on a case-by-case basis. While yield softening in many of the retail sectors has been recorded, selected sectors have seen yields remain firm. Well-located, single property assets such as supermarkets and DIY stores have regularly been sold at yields of less than 4%. Enquiry is also buoyant for retail centres high in non-discretionary related stores and/or premises located within strong demographic catchments.
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