Wellington retailers are forking out hundreds of dollars more for rent each year than their Auckland counterparts.
New research from Colliers International shows that Wellington retailers are paying $1257 gross per square metre to rent prime space in the central city, while Auckland-wide retailers are paying $1017 net per square metre.
The rise in rents are a consequence of the demand, with an increase in new entrants and more retailers relocating.
Retailers in the capital pay $1257 per square metre, while Aucklanders pay $1017 per sqm. KEVIN STENT/FAIRFAX NZ Retailers in the capital pay $1257 per square metre, while Aucklanders pay $1017 per sqm.
Colliers researchers say the challenge for the sector now will be how to keep up with this heightened level of demand.
Investors are eyeing up their next move, as their confidence is the strongest it has been this cycle and the future looks bright.
The rise in new entrants to Wellington and more retailers relocating around the CBD confirms the dramatic upturn in the market's strength in less than 18 months.
Colliers June survey showed Wellington's 8.9 per cent CBD vacancy was up from 8.3 per cent a year ago. However, that masked the underlying trend of the sector's resurgence.
About 6400 sqm of retail space was yet to be leased by David Jones - which is now up and running and boosting retail spend.
On top of that, there are, a number of new tenants signing up for space like Wittner, Platypus, Life Pharmacy, a confidential major fashion retailer, as well as other major internationals all scouring around for their new home.
The vacancy rate was expected to drop to 7 per cent by mid-next year.
The completion of refurbished space for David Jones has reintroduce a sizeable amount of CBD supply, but it hasn't unlocked additional space to lease.
This is a rising trend, as landlords get numerous queries from retailers when their premises come up for lease.
However, new office buildings will provide new additions to the retail sector, and provide opportunities for retailers to move to better locations.
The growth of the Thorndon precinct for new government tenants may see a shift in retailers moving north over coming years.
This will be especially noticeable for convenience and food and beverage operators looking to take advantage of the increased workforce.
Shopping centre vacancy remains low in the region.
Stride Property have recently announced its plan to redevelopment the Johnsonville Shopping Centre.
Rents and incentives in a tight range
CBD prime rents and regional rents have increased over the past year, while bulk retail rents have remained steady.
This is reflective of the retailing environment, but also the sector's tight rental range throughout the country.
Retail spending from Statistics New Zealand shows consumers are out spending again, with Wellington retail sales up 1.4 per cent over the past year.
However, the increase in volumes at a higher rate indicates margins remain thin.
This may limit landlords from increasing rents rapidly in a positive leasing environment.
Yields and capital values on the rise
Investors in Wellington retail property have the highest level of confidence since 2008.
The confidence is reflected in investment yields firming in the CBD and regional centres.
However, there is a lack of prime building to invest in, which will be exacerbated by current market conditions.
Investment activity will continue to rise as buyers take advantage of a lower interest rate, but the focus will remain on capital appreciation rather than rent rises.
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