CBD fighting back against mall expansions
Shopping in Hamilton's central business district is showing signs of new life that may help combat the retail spend that has been leaking into suburban malls, a new report from Colliers says.
Colliers annual retail market report shows Hamilton suburban shopping centres such as Te Awa The Base and Westfield Chartwell are continuing to draw shoppers away from the central city shopping areas.
"Retail in the CBD is still under pressure," Colliers' Hamilton director Mark Brunton said.
And most of that pressure, the report says, is falling on central-city landlords to drop rentals and offer more competitive incentive packages to retain or attract tenants.
But net rental rates have remained stable over the past 12 months with prime rentals going for between $400 and $750 a square metre and secondary rentals ranging from $100 to $250 a square metre.
Capital value for property also remains steady. Prime capital value sits between $4445 and $8825 a square metre while secondary properties fall between $950 and $2780.
The numbers may be unchanged but the vacancy levels are rising in the CBD, the report said.
"What you have to understand is the volumes in the market are well down so while rentals are dropping, there's such a limited amount of transactions because the market is so subdued," Brunton said.
"The take-away messages here are the central retail district is getting smaller and because of Kiwi [Income Property Trust], it will get smaller still. It will be a very compact retail core in Hamilton."
He said the anecdotal evidence was there with shifts by businesses such as Smith Sports Shoes, moving from southern Victoria St into Barton St.
"Retail itself is unlikely to survive in the fringe city locations," Brunton said.
The report said retail expansion was continual at Te Rapa's The Base; owner Tainui Group Holdings has announced expansion of the site with a new 3000sqm automotive precinct.
Brunton said suburban centres would continue to build retail presence and pull the retail dollars leaving the CDB, but not necessarily the tenants.
However, in response, Centre Place shopping centre is also expanding.
The current redevelopment increases its retail floor space to 26,000sqm and will house more than 110 speciality stores which will bring a new vibrancy into the city, Brunton said.
"Instead of spreading our retail activity, arguably, from Collingwood to London St, what you're going to find is that it will be from mid-Barton St to Ward St.
"So while you've got the negative, you've also got the positive that it is going into a smaller, better, more vibrant [city.] "
Prime market yields have held at 8.5 per cent to 9 per cent, while secondary market yields range from 9 per cent to 10.5 per cent and, over the next 12 months, the report expected yields to remain strong and rentals to remain steady.
"The horse is bolted, we are where we are and you wouldn't expect any further decline," Brunton said.
A caveat in terms of yields is the implications of changing earthquake standard perceptions for both landlords and renters, he said.
With earthquake building standards tipped to change and a lot of old inner-city properties likely to need upgrading, it is becoming more difficult to successfully market a property, Brunton said.
"It has a dramatic effect on value so you would expect the yields to blow out because of those issues but not because of the retail environment."