KEY POINTS:
Rent on one of the country's most valuable stores is about to take a big hike.
The annual cost of leasing a tiny shop in the bottom of an art deco building on Auckland's Queen St has risen sharply from $150,000 to $210,000 - a price which equates to about $4000 per square metre.
The price has shot up from just over $2000 a sq m to the new rate which is thought to have set a record.
And sources close to the deal said that despite disruption from the ongoing Queen St upgrade, tenants were scrambling to rent the prime space because demand was exceeding supply.
For the last six years, shoe retailer Andrea Biani has leased the small shop on the corner of Queen St and Vulcan Lane, paying $150,000 a year.
The shop floor is one of Queen St's smallest, at just 49sq m, although it has a basement of an extra 70sq m.
Now, the shoe shop is moving to other premises nearby on Queen St and neighbouring Partridge Jewellers is expanding into the tight space.
The tiny store is so highly sought-after because it occupies an area of the CBD with the highest pedestrian count. Thousands of people flow past its windows daily.
Jewellery chain owner Grant Partridge of Wellington said he had not heard of a higher shop rent in New Zealand.
He is paying about $3000sq m for his Wellington shop on Lambton Quay.
"We're paying over the top for the Auckland store. But it gives us a prominent location and that corner site is fantastic," he said.
For the existing store in the building and the new space, he will pay $400,000 a year, he said.
Nathan Male of specialist retail leasing brokerage Metro Commercial said the two best locations on Queen St switched between Whitcoulls and the Andrea Biani store, depending on when surveys were taken.
The Andrea Biani shop was in one of the city's premium locations.
"It's always either the number one or number two position on Queen St," Male said.
Queen St's prime fashion area stretched from Whitcoulls to the Florsheim shoe shop, he said. The Andrea Biani shop was not only at the heart of this strip, but was also on the Vulcan Lane corner which made it even more desirable.
"That's the apex of activity," Male said.
The shoe retailer's lease at 112 Queen St expires next month. Partridge has taken a new nine-year lease on the space with fixed annual rent increases of 5 per cent annually. The jeweller will create a watch boutique in the corner store.
The shop is in a character 1930s office block where 80 per cent of income comes from shops and the rest from commercial tenants.
"Several tenants wanted the corner position but the landlord chose Partridge because of their proven track record over the past six years as an existing tenant in the neighbouring shop," a source said.
A lease to The French Bakehouse on the Vulcan Lane side of the building has just been renewed. The bakehouse has been in the same shop for six years, paying $60,000 annually. That lease expired in May and the business took a new six-year lease at $100,000 with future fixed increases of 5 per cent a year.
Sources said Queen St has lost none of its appeal to tenants and demand for shops has outstripped supply.
"There is a distinct benefit to Queen St landlords where tenants don't have rights of renewal at the end of their lease. In these circumstances, a premium price can be achieved at the end of the lease term because the landlord can take the premises to the market and create a competitive situation with new prospective tenants," one property owner said.
"Fixed annual increases are becoming more popular in Queen St because it saves landlords and tenants arguing and retaining valuers at rent review dates," he said.
"It also provides the landlord with certainty of rental growth and hedges the tenant against large market increases in the future. Leasing incentives such as rent free periods and vendor contributions towards tenant fit- outs do not feature in prime Queen St locations. Key money is often paid by tenants to secure a good site."
Barfoot & Thompson said on Monday Auckland house and flat rents had dropped from $375 in May to $373 in June and $367 last month.
