New Zealand | Retail | 2015

Retail Reality Check

NEW SUPPLY

> The level of demand for retail space in Auckland CBD, the suburbs and shopping centres symbolise a market on fire. Vacancy rates are down across all of Auckland. Retail spend will be driven particularly by rising house prices and real wage growth. Developers have upped the ante to satisfy demand, but pressure remains for rents to rise. Not all retailers are able to absorb higher costs, with economic headwinds, the growth of online shopping, competition for space and a new era of consumerism likely to produce challengers for some retailers.

> Outside of the main centres, retailers in a growing catchment well serviced by an increasingly wealthy and growing resident or tourist population, are doing well. In underperforming CBD retail locations, new office, residential and student developments are heralded as key catalysts to increasing pedestrian counts and driving retail spend up. The continual rise and popularity of suburban convenience centres and large format retailing remain key areas of consideration for retailers, investors and planners for the future.

VACANCY RENTS INCENTIVES CAPITAL VALUES YIELDS

New Zealand retail sector economy   Retail Employment (FTEs)  15%

  Retail Real GDP (2015 $m) Forecast

10% Percentage change (%)

> Christchurch CBD retail is on the cusp of a return to prosperity, enabled by new private sector developments. Adequate car parking and the timing of key anchor projects remain the sector’s hurdles, but they are necessary to boost pedestrian counts sufficiently. Outside of the CBD, retail’s footprint has expanded significantly and is flourishing.

12 MONTH FORECAST

OVERALL PERFORMANCE

Key Findings

> 2015 is turning into a pivotal moment of change for Wellington retail. Rising offshore interest is a major turnaround, boosted by David Jones and Seed Heritage setting up shop in Wellington. Rumours of Topshop opening have added fuel to the fire. The positivity will spread, leading to rental rises that boost investment activity.

12 MONTH CHANGE

KEY INDICATORS

5% 0% -5%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

New Zealand’s economic strength has lifted the retail sector out of a lacklustre period of consumer spending, but mixed messages keep emerging. Retail is benefitting from record high immigration, strong labour conditions and a rising housing market in a low interest rate environment. However, only select retailers are winning. Effects from online retailing continue to impact retailers selling substitutable products, especially in regional locations. The Government’s review on GST for online goods may assist in the future. Diverging expectations on upcoming economic and consumer activity means some retailers are in for a reality check. Upcoming rent rises will quickly separate the underperformers. Investors will be mindful of their tenant choices, but the shortage of favourable stock and a growing pool of investors, will keep demand strong, and yields firm.

-10% -15% Source: BERL & Colliers International Research

Main Centres

Apex Mega Centre Sylvia Park, Auckland

Auckland Demand highest since 2007

The United Arab Emirates-based investor, Murzah International FZE sold Apex Mega Centre to Kiwi Property Group. The 16,200 sqm centre sold for $64 million at a circa 7% yield. The mega centre sits adjacent to Kiwi Property’s Sylvia Park Shopping Centre. The mega centre is anchored by Freedom Furniture, Torpedo 7 and Spotlight and at the time of purchase, was fully occupied with a weighted average lease term of 5.13 years.

Auckland retail vacancy   Jun-14    Jun-15 12% 10% 8% 6% 4%

Henderson

Takapuna

Dominion Road

Ponsonby Road

Parnell

Newmarket

Queen Street

2% CBD

Statistics New Zealand’s latest retail spending data shows Auckland’s share of retail spend continues to rise, with population growth, house price rises and real wage growth boosting the sector’s outlook. This will keep demand strong.

Boost to Auckland retail supply

14%

0%

Auckland region’s 2.4% vacancy rate is the lowest since late 2007. Demand has grown steadily from retailers looking for opportunities to take advantage of the rise in Auckland consumers’ buoyant mood. CBD retail vacancy has reduced from 3.0% in late 2014 to 2.5% as at June 2015. City Fringe retail spots are also feeling the positive vibe, with Newmarket, Ponsonby and Parnell recording declining vacancy rates. Suburban retail landlords in areas like Dominion Road from Mt Eden to Mt Roskill, Takapuna and Henderson are all enjoying low vacancy. Auckland shopping centres continue their strong run, with less than 1.0% vacancy out of more than one million sqm of space.

Source: Colliers International Research

Southgate Centre

The additional demand for CBD office and residential space will boost retail significantly over the next five years. The current supply pipeline could increase from 124,000 sqm by an additional 50,000 sqm by 2021, with NDG Auckland Centre providing just under half of the additional space. Current intentions are for construction to take place mid-late next year with a scheduled opening date of January 2021. Construction will need to coincide with the City Rail Link (Aotea Station) if the development is to proceed. Other major works, also coinciding with the CRL, will be Precinct Properties’ Downtown Shopping Centre redevelopment with completion scheduled for 2018. New CBD offices and apartments will create new ground floor retail space, providing much needed alternatives to the current lack of space in high pedestrianised spots. DNZ Property Fund’s NorthWest Shopping Centre will be open soon, marking a new step in West Auckland’s retail scene. Further expansion of NZRPG’s retail out west is also thriving. North Shore’s Albany retail sector is expanding quickly to meet a rising residential population.

230 Great South Road, Takanini, Auckland

Rent rise too much for some Prime CBD rents have jumped higher over the year, with new leases in the luxury sector being the main catalyst. Firmly entrenched at the bottom of Queen St, average prime rents now have a new benchmark of over $4,000/sqm. This has flowed onto neighbouring properties up the street, which has seen select retailers, such as RipCurl and Billabong, making a strategic decision to move out of the CBD.

Augusta Capital Limited’s syndication subsidiary, Augusta Funds Management has bought the Southgate centre in Takanini from Retail Holdings for $58.5 million reflecting a 7.47% yield. At the time of purchase, the retail centre was fully occupied with 31 tenancies leasing around 21,000 sqm with a weighted average lease expiry of 9.57 years.

2

Britomart, located in a prominent spot near public transport and the nearby cruise ship terminal, which is receiving annual passenger growth, remains highly popular. After a number of years of deliberation, Tiffany and Chanel will be moving in soon.The lack of space for luxury retailers to explore will be alleviated by the extra space at Downtown Shopping Centre, but traditional spots like Britomart can’t be discounted as a possible location for luxury retailers in the future. Suburban rents in the best spots are rising moderately, with fixed rental increases common for convenience retail.

Market Report | 2015 | New Zealand Retail | Colliers International

TH

ER

N

MW

Y

Cust

oms

Northern Shopping Centres National Branded 4.2%

6.38%

Y

$650

V ict o r

ia St

West

Vict

UP

AUCK

ley S

t We

oria

St E

ast

st

LA

Entertainment/Service

ND t

Auckland CBD M

en S

le

an

t

POS

Parnell

Q ue

PRO

st

5.8%

16

$583

6.13%

Central Shopping Centres

6.75%

1.5%

St

$325

Ea

ED

St

Henderson

St

l ey

Y

Y

es

HW

ll We

N

MW

16 3.6%

y

Q ue

6.63%

TO

$963

IL

W

RN

$2,025

en S

A

1.4% TE

1.7%

H

N O RT H

Ponsonby ES

r t l a n d St

Q ue

Col le ge Hil l Wel les

$3,325

t

MW

1.3%

Sh o

$2,150

en S t

Takapuna

N

P

18

ER

O

0.6%

TH

ER

H

B AR

UR

M

Y

Luxury

SOU

0.5%

W

St We BRITOMART st

High S

SOU

Western Shopping Centres

SOUTH

ER

ER

N

MW Dominion Rd

1.3%

N

Y

$38516

6.38%

W M

N

E

R

A

H

LA

W

E

CK

S

U

T

KEY

an

Que

ST

Y

m

WE

6.0%

Y

um

$1,275

W

Cr

Rd

2.2%

H

M

1.5%

er

UT

PROPOSED

SO

St

en S

ley

t

Newmarket

T

Overall Vacancy Rates (%)

N

O

R

ND

Southern Shopping Centres

Eastern Shopping Centres HA

Average Prime Retail Net Rents ($/m2)

0.2%

M

0.6%

IL

TO

N

Average Prime Market Yields (%)

H

W Y

20

Trend: June 14 - June 15 Actual June 15 figure 0%/$0 No Change

Source: Colliers International Research

Note: Shopping centres include city centres, town centres, regional centres, district centres, neighbourhood centres and bulk retail centres

Auckland Retail Market Review 2015 compared to 2014 Market Conditions Enquiry

Average prime net rents  $1,118/m2



Consumer confidence

Average secondary net rents  $556/m2

Investor confidence  net positive 47%

Average prime yields  6.31%

Supply 

Average secondary yields  8.71%

Demand 

Prices 

Buyer groups = private and institutional investors

Overall vacancy  2.4% (June 2015)

Market Report | 2015 | New Zealand Retail | Colliers International

3

Main centres retail investor confidence   Jun-15    Jun-09

100% Retail Investor Conficence*

80% 60%

47% 30%

40% 10%

20% 0% -20% -40% -60%

-41%

-51%

-42%

Investors undervaluing retail Investor interest in Auckland’s retail sector is increasing, primarily due to the cyclically positive economic conditions and the weight of capital chasing retail property. The growth of Auckland and the value of its housing are driving the sector along, with convenience shopping and shopping centres being the main point of interest. Low interest rates are fuelling local debt market purchasing and offshore involvement, the latter particularly interested in shopping centres. Retail yields have room to firm in the current cycle despite approaching historical lows.

-80%

-100%

Auckland

Wellington

Christchurch

Wellington Top spots receive the demand

Source: Colliers International Research *Net positive

Wellington’s 8.3% vacancy rate has decreased from 9.8% recorded 12 months ago, indicating a positive turnaround. Enquiry from offshore parties over the last 12 months has translated into real activity, with David Jones acquiring Kirkcaldie and Stains. This transaction has generated significant momentum in Wellington’s retail sector, spurring interest from local and offshore retailers to find opportunities within the “DJ zone”. TopShop who are currently rumoured to be moving into 256 Lambton Quay and Melbourne’s Seed Heritage who are opening in early 2016, show just how the sector has changed in such a short time. While some space has become available in Featherston St and the eastern side of Lambton Quay, there is very little prime central retail space available. This is a trend forecast to continue, with further reductions in retail space availability expected over the next 12 months as the retail sector takes on a new lease of life.

Porirua Mega Centre (part) 2-10 Semple Street, Porirua, Wellington

New and refurbished developments provide additional supply Argosy Property sold a portion of the Porirua Mega Centre for $11.5 million to a private investor reflecting a yield of circa 9.2%. Argosy’s share of the Mega Centre is a shared carpark and seven retail tenancies covering a net lettable area of 7,046 sqm. Mid-last year Argosy sold the Waitakere Mega Centre for $45.8 million to reduce their exposure to retail property in favour of industrial and commercial investments.

Wellington retail vacancy   Jun-14    Jun-15

25% 20%

There is just over 110,000 sqm of retail space in the Wellington CBD, which by all measures has been relatively static for the last decade. New office developments trigger new retail space, with 20 Customhouse Quay and the proposed Willis Bond Kumutoto Site, the next two major office developments on the horizon that will boost pedestrian counts. Willis Bond’s Weltec site will bring more consumers and much needed new retail space to Cuba St. Lombard Lane, on the corner of Victoria and Manners St – heralded as Wellington’s answer to Auckland’s Vulcan Lane – is opening early 2017. It will consist of 12 speciality stores including a restaurant with an outside dining area. Government’s co-location strategies under WAP1 and WAP2 will also shore up areas of underutilised space, adding a much needed vibe. Greater levels of concentrated pedestrian flow will boost retail spend for nearby retailers.

15%

Gross rents stable across most sectors

10%

Greater understanding of insurance costs and growing competition have reduced total operating expenses by approximately $10/sqm. This has kept gross rents stable in most areas, which have been under pressure, especially for larger premises. The pre-determined nature of fixed rental increases has created a two-tier market, and in some cases, is starting to get out of line with market rents. This may provide opportunities for tenants in upcoming reviews. The exception is Prime Lambton Quay, where rents are on the rise - a reflection of the ongoing popularity and new tenant entrants. Given the demand for the top spots, further rental appreciation can be expected.

5%

Source: Colliers International Research

4

Cuba Street

Courtenay Place

Manners Street

Willis Street

Lambton Quay

CBD Core

0%

Market Report | 2015 | New Zealand Retail | Colliers International

WELLINGTON RAILWAY STATION

North City

Lamb ton Q

u ay

Lambton Quay 5.5%

$2,033

0.9%

6.75%

Willis Street 13.1%

$1,093

2

7.13%

Wil

lis S t

Westfield Queensgate 0.1%

Johnsonville Shopping Centre 1.6%

1

2

Willi sS

t

Cuba Street 5.5%

Cub

aS t

Wellington CBD

Dix on

Manners Street

Ma

13.5%

nn e

St

rs S

t

Courtenay Place $875

7.13%

Cou

rten

KEY

ay P

l

aS

t

9.2% Cub

Overall Vacancy Rates (%)

Cub

aS

t

Average Prime Retail Net Rents ($/m2) Average Prime Market Yields (%) Trend: June 14 - June 15 Actual June 15 figure 0%/$0 No Change

Source: Colliers International Research Prime strip retail based on 100 - 200 sqm shop area

Wellington Retail Market Review 2015 compared to 2014 Market Conditions Enquiry

Average prime CBD gross rents  $1,212/m2



Consumer confidence

Average secondary CBD gross rents  $732/m2

Investor confidence  net positive 10%

Average prime yields  7.04%

Supply 

Average secondary yields  7.38%

Demand 

Prices 

Buyer groups = private and institutional investors

Overall vacancy  8.3% (June 2015)

Market Report | 2015 | New Zealand Retail | Colliers International

5

Investor confidence in Wellington grows

New Zealand retail property sales under $2 million   Sales - First Half    Sales - Second Half   Number of Sales

750 650 550 450 350 250 150 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Jun-15

50

2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200

Source: CoreLogic & Colliers International Research Highlights main & regional centres discussed in this report

Scentre Group enter joint venture with GIC for five New Zealand Shopping Centres

A joint venture was undertaken by Scentre Group, the owner and operator of Westfield in Australia and New Zealand, and Government of Singapore Investment Corporation (GIC), a sovereign wealth fund. Five Westfield Shopping Centres were transacted for $1.036 billion. Scentre will own a 51% share and GIC a 49% share. The centres include Albany, Manukau, Newmarket, Riccarton and St Lukes comprising a total 225,314 sqm and 838 retailers. At the time, the five centres provided total annual sales of $1.360 billion with an occupancy rate of 99.6%. The transaction represented an approximate 4% premium to book value as at 30 June 2014 and an effective implied cap rate of 6.8%.

Retail sales first half of 2015 over $2 million   Value of Sales    Number of Sales Value of Sales $ (millions)

12

8 6 4

Regional*

Christchurch

Wellington

2 0

Volume of Sales

10

Auckland

Spending remains high Pleasingly for Canterbury retailers, consumer spending has grown considerably over the last year, outstripping all other regions according to Statistics New Zealand. Retail spending was up 10.9% in March 2015 compared to March 2014. This has been an ongoing trend enabling Christchurch to increase its percentage of New Zealand’s spending from 13% to 14% over the last four years.

The predominant focus for central city retail includes food, beverage and banking services. Recent leases in the yet to be completed BNZ Centre include BNZ Bank and Cashel Pharmacy for 483 sqm and 306 sqm respectively. At the Terrace, on the corner of Oxford Terrace, Hereford and Cashel St, Stealth Hospitality has taken 561 sqm. A limited CBD office catchment to date has kept much of the retail activity outside of the central city. As development activity grows, we expect to see a greater number of retailers confirm their return to the central city. Retailers in turn will hope to see a rise in consumers. Some hurdles to this include adequate car parking and the progression of anchor projects to attract people back to the CBD in sizeable numbers. The Bus Interchange is expected to increase activity around Lichfield and Colombo Streets.

Strong retailing in the suburbs Suburban retailing to the west and north is strong due to the shift in residential and working population. Recent large format retail leases include Lighting Direct at Northwood Supa Centa with 818 sqm and Animates at 28 Linwood Avenue leasing 908 sqm. Rebel Sport has leased 1,489 sqm at 19 Chalmers Rd in Hornby. Shopping Centre’s such as Westfield Riccarton, Northlands, The Palms and Hub Hornby continue to report stronger retail spending.

Higher rents a reflection of quality buildings and demand

14

Source: CoreLogic & Colliers International Research *Regional centres includes Whangarei, Hamilton, Hawke’s Bay/ Gisborne, Palmerston North, Tauranga, Dunedin, Napier, Nelson/ Marlborough and Queenstown

6

Christchurch

Slow, but positive momentum in the CBD

Scentre Group

$100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0

Volume of Sales

Value of Sales $ (millions)

850

Investors in Wellington retail property have become increasingly positive over the last year. Concerns over the cost and timing of strengthening works are abating and being factored into purchasing prices. Nevertheless retail property is tightly held and seldom do prime purchasing opportunities eventuate. This keeps demand high for quality stock that does come to market. Some investors are looking at unit-titling larger premises into smaller shops to satisfy demand and increase gross realisation values.

Rents for prime locations in the central city are up by approximately 20% since the earthquakes, reflecting the quality of the premises being occupied. While there is limited transactional evidence, City Mall and CBD rents range between $600 and $1,200/sqm. This is at a significant discount to other main CBD markets around the country. Prime suburban rents reach up to $1,000/sqm for smaller premises, while secondary premises range between $225 and $350/sqm.

Investors cautious, but positive Investors remain active, but cautious in the current environment. Our latest investor confidence survey shows optimists outweigh pessimists by 30%, albeit this has reduced comparably with the progression of central city rebuild. Investors are competitive for prime stock, with yields typically ranging between 6.5% and 7.5%. We expect the city’s ongoing development to be a major catalyst for the retail sector.

Market Report | 2015 | New Zealand Retail | Colliers International

New Zealand retail market indicators Q2 2015 Net Prime Rents ($/m²)

Precinct

Prime Capital Value* ($/m²)

LOW

LOW

HIGH

Secondary Capital Value* ($/m²)

Prime Market Yields** (%) LOW

HIGH

Secondary Market Yields** (%)

AUCKLAND

LOW

CBD

1,700

4,000

600

800

700

1,850

450

650

Ponsonby Road

700

1,225

375

675

10,000

24,500

N/A

N/A

5.00%

7.00%

N/A

N/A

Parnell Rise

365

800

N/A

N/A

5,035

16,000

N/A

N/A

5.00%

7.25%

N/A

N/A

Newmarket

HIGH

Net Secondary Rents ($/m²)

HIGH

LOW

HIGH

LOW

HIGH

24,275

75,200

6,315

10,325

5.00%

7.25%

7.75%

9.50%

10,000

37,000

4500

8125

5.00%

7.00%

8.00%

10.00%

Dominion Road

250

520

N/A

N/A

3,225

9,455

N/A

N/A

5.50%

7.75%

N/A

N/A

Takapuna

500

800

300

450

6,895

14,545

3335

5625

5.50%

7.25%

8.00%

9.00%

250

500

100

250

3,125

7,145

950

2,855

7.00%

8.00%

8.75%

10.50%

300

500

175

250

4,000

7,690

1,945

3,335

6.50%

7.50%

7.50%

9.00%

375

550

200

250

5,770

11,000

2,500

3,845

5.00%

6.50%

6.50%

8.00%

450

700

200

450

6,000

10,770

2,500

6,000

6.50%

7.50%

7.50%

8.00%

220

320

120

220

2,750

4,415

1,200

2,750

7.25%

8.00%

8.00%

10.00%

300

600

150

300

3,335

7,500

1,250

3,000

8.00%

9.00%

10.00%

12.00%

1,720

1,855

531

620

24,570

28,540

7,080

8,550

6.50%

7.00%

7.25%

7.50%

HAMILTON

CBD TAURANGA

CBD MT MAUNGANUI

CBD NAPIER

CBD HASTINGS

CBD PALMERSTON NORTH

CBD WELLINGTON

Lambton Quay Willis Street

753

1,017

N/A

N/A

10,040

15,065

N/A

N/A

6.75%

7.50%

N/A

N/A

Courtenay Place

650

865

N/A

N/A

8,665

12,815

N/A

N/A

6.75%

7.50%

N/A

N/A

Cuba Mall

562

895

N/A

N/A

7,250

12,785

N/A

N/A

7.00%

7.75%

N/A

N/A

450

700

250

400

6,000

11,665

2,940

5,335

6.00%

7.50%

7.50%

8.50%

City Mall

600

1,200

N/A

CBD

650

800

N/A

1,300

1800

300

650

24,760

45,000

4800

13,685

4.00%

5.25%

4.75%

6.25%

500

1150

150

450

5,555

19,165

1,365

5,295

6.00%

9.00%

8.50%

11.00%

NELSON

CBD CHRISTCHURCH

QUEENSTOWN

CBD DUNEDIN

CBD

Source: Colliers International Research. Assumes 100-200 sqm shop *Assuming fully leased at market rates

**Assuming freehold where appropriate

Note: Figures are rounded

Main retail shopping centres market indicators Q2 2015 Precinct

Shopping Centre

Auckland

Regional Shopping Centres

Wellington

Christchurch

Net Face Rents ($/m²)

Operating Expenses Prime Capital Value Prime Market Yields ($/m²) ($/m²) (%)

Low

High

Low

High

Low

High

Low

High

650

1,500

170

270

7,880

24,000

6.25%

8.25% 10.00%

District Shopping Centres

250

600

150

230

2,500

8,570

7.00%

Bulk Retail Centres

200

415

45

75

2,105

5,930

7.00%

9.50%

Regional Shopping Centres

500

1,100

170

270

5,555

16,295

6.75%

9.00%

District Shopping Centres

300

950

270

300

3,000

11,875

8.00%

10.00%

Bulk Retail Centres

205

300

45

75

2,160

3,750

8.00%

9.50%

Regional Shopping Centres

600

1,800

170

270

6,665

25,715

7.00%

9.00%

District Shopping Centres

350

2,500

150

230

3,500

31,250

8.00%

10.00%

Bulk Retail Centres

200

330

25

60

2,105

4,715

7.00%

9.50%

Source: Colliers International Research.

Note: Figures are rounded.

Market Report | 2015 | New Zealand Retail | Colliers International

7

Regional Updates

23 – 27 Beach Street Queenstown

Hamilton Hamilton City’s population is expected to grow at twice the pace of Wellington and Christchurch over the next 30 years, reaching 212,900 by 2041, according to Statistics New Zealand. This level of growth - primarily in the north - will drive retail spend up, but not all sectors and retail typographies will benefit. Hamilton’s population age structure, expansive boundaries and geographical dispersion of its retail base are key challenges for the future. The dominance of the centres such as The Base, Te Awa, Westfield Chartwell and Centre Place, along with the rise in suburban convenience retail has noticeably detracted from central city strip retail performance. The City Council’s Hamilton Plan to encourage central city growth is conceptually encouraging with next steps to be closely monitored by the district’s key stakeholders. Importantly, the rise of suburban versus CBD retail is not a unique occurrence to Hamilton, with global case studies on how to drive change being widely available. Kiwi Property Group’s $36 million redevelopment of Centre Place is a recent showcase locally of what can be done to reinvigorate pedestrian flows. The redevelopment has been well received by retailers and attracted new tenants. The unbalanced performance of retail demand across the City provides a mixed rental profile, with rents edging back slightly across sub-prime grades. However, this has not deterred investors who are keen to bid on well-tenanted retail property. The focus on capital appreciation rather than incremental income gains has proved profitable for some, with prime retail yields firming over the last year by 50 basis points to average 7.5%.

Tauranga/Mt Maunganui There has been a spate of good news for Tauranga CBD’s retail sector. Pedestrian flows at all hours will be greatly elevated by the completion of new office buildings and the green light for a Waikato University Campus. Rents will need to rise at a faster rate over the medium term to reflect the boost to the sector, which will be keenly watched by investors who are already active in a tightly held market. Recent Tauranga leases include Storage Box taking 480 sqm at 64A Elizabeth St, Kitchen Things leasing 723 sqm in Bay Central and Furnish now occupying 813 sqm at T1 683 Cameron Rd. Retailing opportunities in the heart of Mt Maunganui’s retail sector remain tightly held, with pockets of opportunity available sporadically throughout the year. Typically, rents range between $15,000 and $50,000 for shops between 50 sqm and 120 sqm in size. The hospitality sector continues to dominate ‘downtown’ retail, which has benefited the most from a growing population base. Outside of the main retail strips, the addition of a new large format retail development opposite Bayfair is taking advantage of the

8

Star Five Limited sold their multi tenanted properties at 23-27 Beach Street in Queenstown to Beach Street Holdings for $9.9 million reflecting a low 4.14% yield. With a yoghurt store and multiple cafes occupying a net lettable area of 250 sqm, the investment receives an annual rental income of $410,000.

residential volume and value growth of the district. PK Furniture, La-z-Boy Furniture, Hunter Furniture, Harvey Norman and Carpet Court have signed up. Tenancy options from 220 sqm to 1,245 sqm remain available. Earthworks have started and funding is in place for Tauranga Crossing Retail Centre with two-thirds of Stage 1 pre-leased. The expansion works at Bethlehem Town Centre for incoming national retailer Kmart should be completed by early 2016.

Hawke’s Bay Napier’s retail sector has entered into a more stable pattern of activity after the prevalence of intensification and redevelopment throughout 2014. Although a number of the tenants left vacant space behind, leasing activity has moderated the number of vacancies. This has kept rents steady. Landlords of seismically strengthened buildings continue to receive the most enquiries, and we expect a gradual lift in projects over the coming months. The sale of 129 Marine Parade for $600,000 at a yield of 6.77% showcases the robust demand for refurbished and restrengthened buildings. The sale of 64 Carlyle St for $1.35 million at a yield of 7.8% indicates the strength of yields for retail property across Napier. The strength of the Hastings retail sector remains mixed, with multiple options for smaller retail shops and spaces over 1,000 sqm. This includes custom built space or redeveloped premises such as the former Mitre 10 Mega, Noel Leeming and Warehouse stores that become available as these national tenants move to new space. The rise in supply and moderate demand for retail space in the Bay has kept rents broadly stable over the past year. We expect further strengthening works by investors and developers to provide additional opportunities in the year ahead. Investors will continue to seek out prime premises.

Market Report | 2015 | New Zealand Retail | Colliers International

Dunedin retail vacancy

Wakatu Square receive steady enquiry. 2015 has also proved to be a solid year for sales activity, with 188 Hardy St selling for $3.6 million, and three properties at 131, 143 and 295 Traflagar St selling for between $1.5 million and $2.3 million each.

8.5% 7.5% 6.5%

Queenstown

5.5% 4.5% 3.5% 2.5% Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Source: Colliers International Research

Palmerston North Palmerston North’s retail sector is enjoying a solid period of spending activity in 2015, led by strong results in certain sectors of the market. According to the latest electronic card spending data from Marketview, consumer spend in Palmerston North increased 2.4% in May 2015, higher than for New Zealand overall. Department store sales in Palmerston North increased by 9.5% in May, well ahead of the 2.8% rise for department stores nationally. Furniture and flooring spending has also had a strong run, increasing by 17.5% in April and 6.2% in May. Good quality CBD premises remain the most sought after by incoming tenants, with secondary quality retail premises still proving more difficult to lease. Recent leases to Avanti for 925m² in Ferguson St and 1,598m² for JA Russell Ltd in Rangitikei St showcase the leasing activity and the variety of offerings for retailers searching for space. Retail sales activity in the region remains contingent on stock being brought to market. A recent example is the sale of 19 Manchester Square in central Feilding for $1.83 million at a yield of 7.44%.

Nelson The importance of the Nelson-Tasman’s retail sector for the local economy has grown over the last five years, according to Statistics New Zealand and Infometrics data. The total regional GDP of $3,766 million is dominated by agribusiness and manufacturing, but retail provides approximately $230 million of output, up from approximately $180 million in 2009. Growth between 2009 and 2011 was variable, but the steady growth since 2011 has lifted total spending past the previous peak reached in mid-2008. Positive economic conditions have boosted the retail sector, with occupancy remaining broadly stable across the sector. Boutique space in secondary locations is still challenging to re-let once vacated. Hospitality continues to backfill some of the space, with a number of new leases in the past year. Planned developments at Nelson Junction and

Demand for Queenstown retail premises grew further over the past year. Available CBD retail space is almost non-existent, a trend expected to continue for the long-term given its popularity, and its centralised and compact nature. Small pockets of additional CBD space are being refurbished and expansions are planned to alleviate a small part of the pent-up demand. Expanding local retailers and new national retail tenants are set to enter the scene with the completion of approximately 23,000 sqm of retail space currently underway in Frankton. Tenants include Rebel Sport, Countdown, Briscoes, Dick Smith, Supercheap Auto and more. Another 19,000 sqm of retail space is planned for the future. This is being spurred by significant residential development, a strong tourism sector and the wealth effect being created from rising house prices and low inflation. Rents in prime and secondary locations remain strong as a result of the high demand. There is no shortage of investors looking to purchase retail property in Queenstown. Retail investment yields are typically stronger than anywhere in the country, regularly achieving rates between 4% and 5%, and on the odd occasion reaching sub-4%. Recent sales examples include the $9.9 million sale at 23-27 Beach Street for a 4.1% yield and a $3 million sale at 16 Rees Street for a 4.55% yield. Given the tightly held nature, strong economic conditions and popularity of Queenstown retail property, we expect more positive retailing stories in the future.

Dunedin Retailing activity in Dunedin remains stable, showcased by the fourth consecutive year of vacant space aggregating to approximately 17,000 sqm, according to the latest Colliers International survey. Dunedin’s ‘Golden Block’ of retail premises, situated around the three main malls, enjoy high pedestrian counts and remains popular with tenants. Food and beverage retailing to the north remains well occupied, with pockets of opportunity for new leases. To the south, the former Bond and Bond shop on Crawford Street provides a larger retailing opportunity of over 1,000 sqm. Recent refurbishment and redevelopment activity spurred by restrengthening work is rejuvenating a number of stores around the city. A moderate number of projects are taking place as landlords progressively come to terms with new requirements, costs and the necessity of such works to attract national tenants. While rents remain broadly in line with rates achieved over the past year, investors are still actively searching for opportunities, and competition is strong for the best sites. The Mill, 408 Andersons Bay Road sold for $2.3 million at a yield of 6.77%. Cost expenditure for restrengthening work in one of New Zealand’s first major industrial and commercial centres is now being factored into purchasing, which has seen a slight softening of yields over the past year.

Market Report | 2015 | New Zealand Retail | Colliers International

9

Outlook Retailers’ prosperity in the short to medium term will be driven by positive demographic and socio-economic factors that will boost the number of people buying, and the amount they are spending, at their shops. Not all retailers will be positioned well in this regard, but retailers enjoying a positive mix of these factors will flourish. In the medium-term, retailers can expect consumer spend will be influenced by online shopping, rising fuel prices, an unusually lacklustre dairy sector, a slower economic growth rate and global economic rumblings. The corollary is low inflation, reducing interest rate costs, and strong labour market conditions.

Investors will need to be vigilant in their selection criteria and understanding of the cyclical and structural changes occurring in the economy and the retail sector. For some, especially the more passive investors, this may be a deterrent to entry or a push to pursue other opportunities. Rents will rise, causing some retailers to exit, but yields will firm further from already low levels. Battles between the CBD and the suburb, strip versus mall and offline versus online will remain prominent in retail rhetoric. This provides significant opportunities for investors who have a strategy that coincides with a progressive retailer engaging with its customer base.

Retail leasing activity Address

Source: Colliers International Research

Precinct

Grade NLA (m2)

Date

Tenant

AUCKLAND

Apex Mega Centre, 393 Mt Wellington Highway

Mt Wellington

A

1,350

Sep-14

PK Furniture

Westgate, Fernhill Drive

Massey

A

11,000

Sep-14

Mitre 10 Mega

Westgate, 10C Northside Drive

Massey

A

3,500

Nov-14

Palmers Planet Garden Centre

Ground Floor, 360 Queen Street

CBD

C

320

Apr-15

Nandos NZ Limited

Botany Town Centre, Ti-Rakau Drive

Botany

B

1,979

Apr-15

Big Save

Pukekohe Mega Centre, 182 Manukau Road

Pukekohe

A

2,008

May-15

PK Furniture

629 Princes Street

CBD

A

1,260

Nov-14

Animates

343 George Street

CBD

B

400

Dec-14

Boardbase

248 George Sreet

CBD

A

400

Feb-15

Noel Leemings

Ground floor, 153 Thorndon Quay

Thorndon

A

271

Dec-14

Millie Retail

Coastlands Shopping Centre, State Highway 1

Paraparaumu

B

340

May-15

Lighting Plus

3 Parumoana Avenue

Porirua

B

500

May-15

Animates

79 Tristram Street

CBD Fringe

B

1,465

Nov-14

Harvey Norman Clearance Store

473 Anglesea Street

CBD Fringe

C

420

May-15

Gun City

83 Tristram Street

CBD Fringe

C

559

Mar-15

Bay Betta Electrical

DUNEDIN

WELLINGTON

HAMILTON

CHRISTCHURCH

113 Blenheim Road

Riccarton

B

480

Nov-14

More Mobility

Unit 3, 19 Chalmers Street

Hornby

A

1,489

Dec-14

Rebel Sport

BNZ Centre, 101-119 Cashel Street

CBD

A

483 & 306

12 Papanui Road

Merivale

A

222 & 280

Apr-15

Bo Concept & Citta Design

A

818

May-15

Lighting Direct

Northwood Supa Centa, Unit N, Cnr Main North Road & Radcliffe Road Belfast

Jan & Mar-15 BNZ & Cashel Pharmacy

248 Linwood Avenue

Linwood

C

908

Jul-15

Animates

The Terrace, Cnr Oxford Terrace, Hereford & Cashel Street

CBD

A

561

Jul-15

Stealth Hospitality

90 The Square

CBD

B

320

Apr-15

Hello Banana

183 Rangitikei Street

Bulk

B

1,598

May-15

J A Russell

407 Ferguson Street

CBD Fringe

C

925

May-15

Avanti

300 St Aubyn Street East

Hastings

A

2,323

Aug-14

PK Furniture

206-208 Heretaunga Street East

Hastings

B

600

Nov-14

Aspyre Fitness

318-322 Heretaunga Street West

Hastings

B

320

Apr-15

People For Pets Storage box

PALMERSTON NORTH

NAPIER/HASTINGS

TAURANGA/MT MAUNGANUI

64A Elizabeth Street

Tauranga

C

480

Oct-14

Bay Central, 65 Chapel Street

Tauranga

B

723

Oct-14

Kitchen Things

T1 683 Cameron Road

Tauranga

C

813

Feb-15

Furnish

10 Market Report | 2015 | New Zealand Retail | Colliers International

Retail development activity

Source: Colliers International Research

Estimated Completion

Precinct

Estimated NLA (m2)

The Cider Building, Cnr Williamson Avenue & Pollen Street

Ponsonby

7,400

NorthWest Shopping Centre (Zone 5), Fred Taylor Drive

Massey

30,000

Under Construction

Q4 2015

DNZ Property Fund

Hobsonville Centre

Hobsonville

5,800

Under Construction

Q4 2015

Private

Zone 7, Westage Town Centre

Massey

25,000

Under Construction

Q2 2016

NZRPG

Zone 1 & 2, Westgate Town Centre

Massey

40,000

Marketing

Q4 2016

DNZ Property Fund/NZRPG

Zone 10 & 11, Westgate Town Centre

Massey

53,000

Marketing

TBC

NZRPG

Zone 6 & 8, Westage Town Centre

Massey

30,000

Proposed

2017+

NZRPG

Downtown Shopping Centre

CBD Core

20,000

Proposed

2018

Precinct Properties

Orchard Park Retail Hub, Cnr Corinthian Drive & Data Way

Albany

2,300

Proposed

TBC

Northbridge Properties

Project Name/Address

Status

Owner/Developer

AUCKLAND

Under Construction

Q3 2016

Progressive Enterprises

HAMILTON

Riverbank Mall, 286 Victoria Street

CBD

714

Under Construction

Q3 2015

Stark Property

WELLINGTON

Kapiti Landing Business Park - Stage Retail

Paraparaumu

~40,000

Various

2015+

Todd Property Group

Cuba Mall (Redevelopment), Cuba & Dixon Street

Te Aro

1,500

Proposed

Q2 2017

Willis Bond

Wellington Airport Retail Park (Expansion)

Rongotai

2,500

Under Construction

Q4 2015

Wellington Airport Private Developer

Bunnings (Former NZ Post), Te Puni Mail Centre

Petone

6,435

Under Construction

Q1 2016

Briscoes/Rebel Sport (Former QV Building & Colgate factory), Nevis Street

Petone

4,200

Under Construction

2016

Briscoe Group

K Mart (Former Feltex Rubber Factory), 35 Hutt Road

Petone

5,200

Proposed

2017+

Private Developer

Wigram Skies, The Runway

Hornby

4,400

Under Construction

Q3 2015 (Stage 1) Ngai Tahu Properties

BNZ Centre, 101-119 Cashel Street

CBD

4,908

Under Construction

Q4 2015 (Stage 1) Lichfield Holdings Q4 2016 (Stage 2)

The Terrace, Cnr Oxford Terrace, Hereford & Cashel Street

CBD

3,422

Under Construction

Q2 2016

Hereford Holdings

Spitfire Square, 530-546 Memorial Avenue

Airport

6,000

Under Construction

Q3 2016

Christchurch International Airport

The Crossing, Cnr Cashel Mall & Colombo

CBD

12,000

Under Construction

Q4 2016

Carter Group

CHRISTCHURCH

392 Moorhouse Avenue

Sydenham

3,150

Proposed

Q4 2016

Ferryoak Properties

ANZ Centre, Cnr Colombo, High & Cashel Street

CBD

2,600

Under Construction

Q1 2017

CHC Properties

The Landing - Remarkables Park Extension, Hawthorn Drive

Frankton

3,200

Complete

Q4 2014 Q1 2015

Hawthorne North Ltd

Stage 1A, Five Mile Retail Centre

Frankton

~15,000

Under Construction

Q4 2015

Redwood Group

Mitre 10 Mega, Shotover Park

Frankton

6,450

Under Construction

Q4 2015

Private Developers

QUEENSTOWN

Ramada Hotel - Remarkables Park Extension, High Street

Frankton

800

Under Construction

Q2 2016

Safari Group

Eichardts Extension, Marine Parade

CBD

600

Under Construction

Q2 2016

Skyline Investments

Remarkables House, Remarkables Park Extension

Frankton

800

Proposed

Q3 2016

RPL

Stage 1B, Five Mile Retail Centre

Frankton

~13,000

Proposed

2017

Redwood Group

Pak'n Save, Shotover Park

Frankton

~6,000

Proposed

2017

Foodstuffs South Island

Harvest Court Mall, 218 George Street

CBD

1,000

Part Completed

Q1 2016

Marca Investments

The Grainery (Ground Floor), 115 Cumberland Street

CBD

1,000

Under Construction

Q2 2016

Atom Holdings

DUNEDIN

NELSON

Nelson Junction

Annesbrook

30,000+

Under Construction

2016+

AMP Capital Property

Wakatu Square

Central

~6,000

Proposed

2016+

Windermere Holdings

Tauriko

~17,800

Under Construction

Q3 2016

Tauranga Crossing Ltd

TAURANGA/MT MAUNGANUI

Tauranga Crossing Retail Centre - Stage One NAPIER/HASTINGS

33 Havelock Road

Havelock North

600

Under Construction

Q4 2015

Mackersey Development

14 Donnelly Street

Havelock North

1,000

Proposed

Q2 2016

Aristotle Holdings

87-97 Ford Road

Napier

~6,500

Proposed

Q2 2016

Wallace Developments

Market Report | 2015 | New Zealand Retail | Colliers International 11

Retail sales activity Precinct

NLA (m2)

Sale Date

Yield

Sale Price ($)

Vendor

Purchaser

Pakuranga Plaza, Cnr Ti Rakau Drive & Pakuranga Road

Pakuranga

29,000

Nov-14

Undisclosed

96,000,000

Ladstone Holdings

Singaporean Investor

Apex Mega Centre, 393 Mount Wellington Highway

Sylvia Park

16,100

Feb-15

~7.0%

64,000,000

Murzah International FZE Kiwi Property Group

 21,150**

Mar-15

~7.5%

58,500,000

Retail Holdings

Augusta Funds Management

Two Bulk Retail Buildings, 2 & 6 Railway Papakura  Street West

Various

May-15

Various

22,000,000

Private Vendor

Various Private Investor

7 Retail Units, 175 Millwater Parkway

Silverdale

Various

Jun-15

4.9% - 6.2%

6,793,000

Broadway Developments

Various Private Investor

6 Retail Units, 26-28 Anzac Road

Browns Bay

Various

Nov-14

4.3% - 5.2%

5,930,000

AEG Browns Bay

Various Private Investor

Cavendish Convenience Centre, 175-179 Cavendish Drive

Manukau

1,750

Dec-14

Vacant Possession

5,400,000

Cavendish Clinic

Medical Owner Occupiers

Caltex, 731 Beach Road

Browns Bay

2,336*

Dec-14

Undisclosed

3,800,000

CX Browns Bay Investments

Private Investor

Animates, 7-9 Bridge Street

CBD Fringe

910

Jun-15

7.5%

3,750,000

Longman Holdings Limited

Private Investor

Resene, 24 Knox Street

CBD Fringe

823

Nov-14

~6.4%

2,620,000

Private Vendor

Private Investor

Address AUCKLAND

Southgate Centre, 230 Great South Road Takanini

HAMILTON

WELLINGTON

Porirua Mega Centre (part), 2-10 Semple Street

Porirua

7,050

Jun-15

9.0%

11,500,000

Argosy Property

Private Investor

Warehouse Stationery, 30-40 Annie Huggan Grove

Petone

717

Feb-15

7.8%

3,000,000

Penrith Holdings

Private Investor

CBD

251

Jan-15

4.1%

9,900,000

Star Five

Beach St Holdings

Napier South

~780

Mar-15

7.8%

1,350,000

Private Vendor

Private Investor

CBD

638

Jun-14

7.4%

1,830,000

Meral Properties

Private Investor

~1,530

Apr-15

6.8%

2,300,000

Don Investments Partnership

Otago Group Land

QUEENSTOWN

23-27 Beach Street NAPIER

64 Carlyle Street PALMERSTON NORTH

19 Manchester Square, Fielding DUNEDIN

Dunedin South

The Mill, 408 Andersons Bay Road Source: Colliers International Research

*Site area

For more information contact: Alan McMahon National Director, Research & Consulting Chris Dibble Associate Director, National Research Elena Christodoulou Research Analyst Nina Zhang Research Analyst Claire Burns Research Co-ordinator

**Gross lettable area

Colliers International Level 27, SAP Tower, 151 Queen Street, Auckland TEL +64 9 358 1888 Download the Colliers ANZ iPad app from the AppStore

TEAM OF THE YEAR RESEARCH & CONSULTANCY

2015 INAUGURAL

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Copyright © 2015 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.