Retailers Offering Shoppers ‘An Experience’ Do Best
There are signs of improvement across the retail sector in the Auckland Region, says Bayleys Research in its latest Retail Report.
However a “polarisation” between prime and secondary persists, with prime property performing very well and secondary property still being sluggish.
According to the 2014 retail vacancy survey by Bayleys Research, retail vacancy across the region has remained much the same with the total retail vacancy rate of 3.1 per cent being the same rate recorded 12 months earlier.
The bulk of the retail vacancy is shown to be in strip retail, as shown in the graph below. Vacancy in the strip retail sector in the Auckland Region was recorded at 5.9 per cent having reduced 20 basis points over the last 12 months. Vacancy in the strip retail sector remains well above historic levels, despite the slight reduction.
Shopping centre vacancy was recorded marginally higher in 2014, compared to the 2013 survey. The latest vacancy rate shows that 1.1 per cent of shopping centre units are without a tenant.
In exceptionally strong economic environments, as was experienced in 2007 and earlier, shopping centre vacancy was practically non-existent. “We witnessed this reach as high as 1.9 per cent before declining again to where vacancy sits now,” says Bayleys Research.
In the bulk retail sector of the retail market, vacancy sits at 1.5 per cent, according to the latest retail vacancy survey. This is down 90 basis points from the 2013 survey, when 2.4 per cent of retail units were vacant.
Bulk retail vacancy has now reduced to a level that is more in line with the six year average.
Based on the precincts which Bayleys Research surveys, the Northern retail areas have the highest level of occupancy in the Auckland Region with just 1.9 per cent of Northern retail property vacant according to the latest survey data. The precinct has a good supply of shopping centres, some of which are high end, and these contribute to the lower vacancy rate.
Like the Northern precinct, the Southern precinct is well supplied with both bulk retail and shopping centres.
“Given these are the best performing sectors of the retail market, it is unsurprising that Southern Auckland retail vacancy is low,” says Bayleys Research revealing that 2.2 per cent of the retail units surveyed were vacant.
Central Auckland retail vacancy was highest among the precincts at 4.9 per cent. In contrast to the Northern and Southern precincts, Central Auckland has high retail vacancy because it comprises a comparatively large supply of strip retail vacancy. “While some of this strip retail is arguably the best in the region, there is a good supply of secondary retail to counter balance it.”
As would be expected of the retail sector, A grade retail property is the best performing grade of stock, with just 1.1 per cent of units surveyed as vacant.
B and C grade made up the majority of vacant retail space across the Auckland Region with 5.2 per cent and 5 per cent vacancy respectively.
“In a market of polarised conditions, it is unsurprising there is a strong split in the performance of prime and secondary retail property,” Bayleys Research says. “A grade retail property is defined primarily by its location because areas that command high pedestrian traffic are generally of a better grade. Further, the environment within which the tenancy sits has a bearing on what grade it is.”
Bayleys says that, given the strong competition for the consumer dollar in the retail industry, the retail precincts that provide shoppers with “an experience” rather than just retail outlets, are winning. “There is a prolific presence of online retail which offers the most basic retail experience to the consumer, often along with a reduced price tag,” the research report says.
“In order to compete with the online element, traditional ‘bricks and mortar’ retailers need to offer more than just an outlet. They need to offer ‘an experience’ that draws people in.”
It is in this aspect of retail that prime shopping areas tend to excel. In major regional shopping centres such as Sylvia Park, Albany Westfield and Botany Town Centre, as well as prime strip retail areas like Nuffield Street in Newmarket, the overall retail experience is exemplified, resulting in these prime retail areas performing exceptionally well.
The secondary retail sector, which comprises B and C grade retail property, is experiencing more elevated levels of vacancy. B and C grade vacancy was measured at 5.2 per cent and 5 per cent respectively in the latest survey. Secondary retail property is that which usually has a lower pedestrian count and is usually of an inferior standard to the surrounding prime retail offerings. As a result, there tends to be a greater turnover of tenants and the tenants themselves are usually ‘lower grade’ tenants.