New Zealand retail moving in the right direction

The Reserve Bank of New Zealand had a clear message for the country’s consumers: reduce consumption to help ease inflation. This directive unfolded throughout 2023. The impacts of elevated living costs and higher interest rates that caused mortgage rates to climb quickly, taking a large percentage of homeowners’ income, are still being felt.

The total volume of retail sales decreased by 1.9% in the December 2023⁽¹⁾ quarter, making it the seventh consecutive quarter where sales fell, after adjusting for price and seasonal effects. Given this environment, it was pleasing to see that rental growth and vacancies remained low over several of retails asset classes.

Auckland CBD

Average net prime CBD rents increased by 4.1%, reaching $2,525 per sqm during the last quarter of 2023. This growth was driven by upper end of the rental market, where rents increased by $200 per sqm to reach $3,850 per sqm. We are still seeing high demand for prime luxury retail locations in the CDB, attracting rents well above the average, at or over $5,500 per sqm.

The demand has seen vacancies for Auckland CBD stabilise at the end of the year at 7.3%, even with plenty of leasing activity and re-shuffling of tenants in the city.

Christchurch CBD

Until the second quarter of 2023, prime retail rental growth had remained flat since September 2020. However, last year’s big correction of prime retail rental growth led to a 17.4% increase for the calendar year. This growth was driven by the upper end of rental offerings and the garden cities low vacancy of 2.8%. The resurgence of the Garden City’s CBD has benefited from newer, high-quality retail spaces, and the return of international tourists, especially from cruise ships, which had been absent since 2011.

Figure 1: Prime CBD average retail rents

Source: JLL Research

Bulk retail

After strong rental growth of 13.8% in 2022 for bulk retail again showed growth in 2023 of 7.8%. The demand for these spaces remains strong, especially when they are in close proximity to the larger shopping centres, which serve as attractive destinations for consumers who want the full shopping experience. An example of this is the current development of the country’s first IKEA store adjacent to the Sylvia Park shopping mall in Auckland.

Capital markets

At year-end 2023, retail property sales greater than NZD$5 million amounted to NZD$603 million, down by 30% compared to 2022 and 67% from 2021. Consequently, this decline saw the number of transactions drop to 34 in 2023, which is 13% lower compared to total transactions in 2022.

Figure 2: NZ retails transactions >$5.0M

Source: JLL Research

Offshore capital has shown a growing interest in understanding the broader New Zealand narrative and its retail market. This trend provides a firm foundation for the retail asset class as we venture into 2024. Considering our position at this time last year, there is now a cautious sense of optimism for the sector.