See below a summary of the biggest trends within New Zealand’s retail market, plus an outlook on the next 12 months for the market.

Biggest trends

Light at the end of the tunnel

After an extended period of challenges with the pandemic and inflation, some positivity is on the horizon. Inflation is getting under control, interest rates are reducing, and changing attitudes to hybrid work may see more office workers returning to city centres. Geo-political tension overseas is creating uncertainty and contributing to slower decision making for some businesses.

Patchy performance

Across the country, the performance of retail properties has been highly sensitive to location and configuration. Hybrid working patterns have had varying impacts, with some suburban locations benefiting, but often at the detriment of central city locations. Vacancy rates within city centres are often significantly higher than in large format and trade retail.

Logistics driving competitive edge

Large-format retailers are reviewing how their logistics operate alongside their retail properties. This has seen an increase in centralised distribution and/or less stock onsite.

Outlook for the next 12 months

Two-step rents

Patchy performance has led to a two-step market. Properties that have performed strongly have been achieving rental growth. Weaker properties have been impacted by softer rents, although in some cases landlords are holding vacancies longer or using short-term leases with the goal of securing full rents in the future.

Investment market shifting into neutral

Sentiment amongst agents suggests the investment market is heading into neutral territory after a period of weakness. Yields have risen since 2022 due to higher interest rates. While recent drops in interest rates should help bring yields down, long-term bond rates have remained persistently high due to lingering concerns about inflation. As a result, yields may not reduce significantly from recent levels.

Higher rents needed for new builds to stack up

Reducing yields largely offset the impact of higher construction costs during 2020-2021. Softer yields and persistently high construction costs mean higher rents are needed for new developments to be feasible. Some experts perceive construction costs are now showing signs of softening which may help improve the viability of new developments.