Retail property sector improving despite online shopping growth

Alan McMahon, Colliers International National Director of Research and Consulting.

The retail property sector is picking up as traditional store outlets lift their game to adapt and compete in a multi-channel shopping world.

"While online shopping growth is continuing, so are traditional in-store sales," says Alan McMahon, national director of research and consulting at Colliers International.

"National core retail household expenditure, excluding online shopping, is forecast to reach $39 billion by 2016 and this will be a major catalyst for retail property sector growth," McMahon says.

However, Colliers International's latest strip and mall retail vacancy surveys show there are winners and losers in the retail property game.

"The trend towards online retailing has been ignited by a generation savvy in social media and mobile device use. This has given the retail sector as a whole a much needed reboot," says McMahon.

"The increase in competition for the consumer dollar has meant that retailers still standing have lifted their game and are adapting and competing in both the online and offline markets."

He says retail is big business in New Zealand, overlapping many industries and representing one of the largest contributors to gross domestic product.

"While online shopping is expected to grow, retail spending in stores is also tipped to increase. By 2016, we forecast household expenditure on core retail items not spent online to reach $39 billion and to keep growing."

By 2031, national household expenditure is forecast to be almost 30 per cent more than it was in 2011, McMahon says.

Colliers International's latest vacancy rate surveys across greater Auckland show that winners and losers are evident in the retail sector. Overall, the retail vacancy rate is flat and shopping centre vacancy rates edged up slightly over the past 12 months.

Some traditional strip retail locations such as Parnell and Ponsonby have underperformed - a reflection of the competitive environment and sales leakage to neighbouring catchments, says McMahon.

Although the overall shopping centre vacancy rate has increased marginally over the past year, the strong performance of regional shopping centres with a vacancy rate of 0.5 per cent is a reflection of efficiency of management and careful tenant mix.

On a regional perspective, different population growth rates affects retail performance, he says. "However, making the assumption that more retail space is needed to service a rising population is simplistic. For example, people shop online for price, convenience and product range, facets of consumption that do not typically lead to a need for more physical retail space. "Geographical boundaries have also been lowered nationally and internationally due to the growth in online shopping."

This does not mean, however, that New Zealand's retail sector footprint is about to flat-line or shrink, McMahon says.

Instead, like other property sectors, efficiency is being driven into the retail sector.

Suburbs and towns undersupplied with existing retail space will record higher growth in new retail space.

A recent example is Silverdale, north of Auckland, where there are multiple new retail developments of approximately 30,000sq m.

Retailer confidence in the area is supported by investors, with yields of below 5 per cent achieved for small tenanted retail units recently sold through Colliers, which also sold the Silverdale Centre for $78 million at a 7.2 per cent yield.

"Conversely, where demand is static, existing retail providers will be under pressure to use their space more efficiently to increase sales, or to downsize," McMahon says.