The July edition of the Colliers monthly property research report reflects the halfway mark for 2022 and presents a timely opportunity for us to provide an update on market conditions across multiple asset classes both of what is being experienced nationally but also some of the local activity that has taken place.
Retail
The retail sector has had its fair share of challenges over the last couple of years, but the opening of closed borders at the end of the month provides some more positive expectations for retailers ahead. The low unemployment rate has been a major tailwind for the sector, but the rising cost of living, debt cost increases and a slowing residential sector provide headwinds that will continue to impact retailing over the short-term.
It is worth noting that despite low consumer confidence surveys, there are bright spots. From an online spending perspective, Q1 2022 was a record, with the latest NZPost report showing an exceptionally strong quarterly result with $2.2 billion of spending occurring, a rise of 86% from Q1 2020 (a record 77% was with NZ-based businesses).
This highlights that people are still willing to spend while property purchasing in the retail sector and leasing activity remains buoyant with Chemist Warehouse leasing new space at 300 St Aubyn Street Hastings, and No 1 Shoes taking on a larger premises at the ex Rebel Sport at 246 Hastings Street Napier. Curtain Studio Hastings recently sold off market at a yield of 5.5%.
Office
The debate surrounding back to office work, remote working and hybrid working continues to take place. While trends offshore provide some insights, caution is advised on their use outside of the origin location.
There remains a desire for good quality office space has risen and this will add pressure to what is ultimately a limited resource.
New Zealand’s adoption of environmental standards, while improving over the years, is arguably still well behind other countries’ approaches. With an ever-increasing focus on the environment and a lack of standardised accreditation in the sector, there is likely to be a number of ongoing challenges.
Quality offices that have been established over the last six months include the 2nd stage of retail and commercial office space at Joll Road Havelock North, which is the new home for Colliers Hawke’s Bay as well as Forsyth Barr and RTA studio Architects. 101 Queen Street East is getting close to completion in Hastings, with Westpac now open and Ask Your Team relocating from Havelock North to a new premises within this development leasing over 800m. of new office. Napier office vacancies remain tight with limited available stock and no A grade space available.
Industrial
Rental growth in the industrial sector will be one of the standout trends for 2022 and 2023, as limited supply and ongoing demand continues to impact the sector. Projections of 3% to 4% p.a. prime rental growth rates are likely to be tested, and while limited evidence is available at this stage, anecdotal evidence suggests higher percentage rates should be anticipated, especially for the most sought-after spots. On the horizon is more industrial floor space, which may assist alleviate some occupancy constraints, but not all pressures.
Irongate, which was planned to take about 20 years to be at capacity, has quickly got close to being fully occupied or developed, with Sun Fruit commencing construction of a new coolstore and another large player in the apple industry looking to construct a new coolstore within Irongate also. T&G $100M packhouse in Whakatu is well under way which is believed to be the ‘biggest in the southern hemisphere. The recent sale of 51 Edmundson Street Onekawa leased to move logistics sold at deadline, at a yield of 4.7%, or $5.25M with multiple parties all very close in price.
