Retail vacancies in Wellington's CBD have reached a record high of 11.3 per cent, with more than 9000 square metres of space available for lease, says Colliers International.
National research director Alan McMahon said the increase had been evident since December 2010 and demand from retailers remained subdued, except in the best locations.
Colliers monitors more than 112,000 square metres of retail space covering 595 shops in the CBD.
"Lambton Quay vacancy increased from a low 1.2 per cent in June 2011 to 5.2 per cent in June this year.
"In saying that, more than 94 per cent of retail space along Lambton Quay is currently leased and remaining space is expected to be absorbed over the next 12 months.
"Willis St was the only retail precinct to record a decline in vacancy, falling by 3.9 per cent to 7.3 per cent in the year to June.
"We anticipate retail vacancy in Wellington to be stable along the golden mile, but we will see an increase in vacancy in some secondary locations."
McMahon said public sector job cuts had weakened confidence in the Wellington market over the past 12 months.
"Retailers are feeling the squeeze on margins and are constrained in their ability to increase prices in a highly competitive market.
"Tenant inquiries in Wellington have ramped up over the second half of the year."
Agents were getting strong inquiries, including interest from Australian retailers for Lambton Quay premises ranging from 80 to 250 square metres.
"The demand gap is widening between prime and some secondary locations.
"Rents are holding up remarkably well along the golden mile, offset by a softening in some fringe areas.
"Landlords are having to offer contributions to fit-outs or rent free periods, to secure tenants in secondary retail space.
"Inland Revenue has proposed to impose taxable cash incentives on tenants for leases entered into after April 1, 2013. This new tax policy will potentially encourage tenants to conclude negotiations for leases that include cash incentive payments before that date.
"Rental levels in Wellington retail property have been flat or declining this year, but they are unlikely to drop any further."
The limited prime supply will place upward pressure on rentals over the next 12 months. If the economy picks up more quickly than expected, landlords in those areas will experience modest rental growth.
Rents for prime retail space in Wellington range widely, with stores paying up to $1925 per square metre for space in Lambton Quay.
By comparison, top rents in Willis St are $1105, rents in Courtenay Place are as high as $720, while annual rents in Cuba Mall top out at $840 per sqm.
McMahon said the battle for market share between supermarket operators Foodstuffs and Progressive Enterprises was triggering the development of 11 new supermarkets across Wellington over the next few years.
"The expansion of DNZ Property Fund's Johnsonville Shopping Centre looks set to start as early as the beginning of 2013."
However, DNZ marketing manager Simon Curtis said that was not the case.
"The Johnsonville Shopping Centre redevelopment is ongoing and a project timetable is yet to be established.
"The directors are carefully reviewing the project feasibility prior to any decision being made."
However, no development work would start in the current financial year (which runs till March 31), Curtis said.
"The $300 million development has been on the cards for many years and will add an additional 22,000 square metres of retail space to the existing 10,000sqm footprint, allowing for better transport integration and additional car parking."
Commenting on other developments in the Wellington region, McMahon said the greater frequency of commercial flights into the Kapiti Coast Airport had been a major boost for Paraparaumu.
"Recently, Todd Property Group has taken a 75 per cent majority shareholding in the airport and 83 hectares of surrounding land.
"New premises are currently in development for New World within the Kapiti Landing Business Park. Other retailers confirmed include Smiths City and Kitchen Things."
- © Fairfax NZ News
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