Is New Zealand ready to go shopping?

29 Sep 2021

By Ashley Hopewell

Unless you supplied toilet paper, flour or home office products the majority of the retail sector was turned upside down with the arrival of Covid-19. Lockdowns resulted in a rapid change for our workforce dramatically reducing foot traffic in many central areas, creating supply chain issues that still continue and a scramble to activate e-commerce platforms.

Fast forward one year and the light at the end of the tunnel seems to be getting brighter. CBRE’s Global Retail Outlook report provides insight into how our retail global markets are beginning to bounce back and where the opportunities lie post 2021. I look at how these trends are playing out locally in the Christchurch retail market.

As global lockdown restrictions begin to ease, the retail sector is seeing a rebound that is globally driven by government stimulus and benefit packages, vaccine distribution and plan activation and continued strong financial markets.

Global GDP numbers are expected to return to pre-pandemic levels and New Zealand is leading the way with a positive business outlook and economic growth. This positive global recovery outlook relies on vaccination levels be a focus for many, especially with the discovery of variants causing a resurgence in many countries.

In the first half of 2021 food and beverage has seen the fastest recovery with patrons looking to reconnect on a human scale once restrictions eased. With the return to the office for many, foot traffic within the central city is increasing allowing hospitality operators the opportunity to meet that demand.

With New Zealand entering strict nationwide lockdown in August 2021, and Christchurch now into Level 2 the immediate response from mainstream economists suggests that while the economy will take a sizeable quarterly hit, the rebound, just like last year, will be even stronger with the stellar performance of the first half of the year returning soon after we move back restriction levels. However, even if we’re successful in eliminating the current outbreak, there will be more to come, implying potentially longer business and social disruptions as we transition from a Covid-free environment to living with the virus.

The immediate impact for the retail sector is the stricter requirements around mask-wearing and social distancing – and how long these restrictions will be in place is yet to be seen. In Christchurch, post the first Covid lockdown, retail and hospitality levels rebounded strongly with locals wanting to be out eating, drinking and socialising and we saw Cantabrians shopping local and staying to where they live, which allowed many small businesses to remain resilient.

It is prudent to note that there are three key risks that may derail this positive upswing. Firstly, virus variants that are causing additional lockdowns and restrictions may cause retail to see a repeat of closedown requirements for non-essential businesses. Secondly, our closed border is creating a labour market shortage in many sectors including retail. Lastly across the globe, supply chain issues continue to hamper getting products to market in a timely manner.

The biggest trend within Christchurch retail has been the acceleration of e-commerce. Consumers are more comfortable with online shopping and this ability is driving wider consumer choice as they want to pay less for more and will search until they find a suitable solution.

The impact of lockdowns has had a tangible effect on how the global and local retail sector and landlords work together on rent and lease structures. While many landlords provided rental relief during the pandemic, with the economy in recovery mode, rent collection is returning to pre-pandemic levels. Shorter lease terms are being requested by retail tenants to allow more flexibility, with landlords including pandemic language in leases such as force majeure and standardised rental increment, and large international tenants are starting to request turnover rents.

Footfall in the central business districts will continue to recover and retail sales will bounce back. What won’t change is the online penetration that has been achieved throughout the last 12+ months. Retailers will continue to invest in online platforms as they adapt store formats to cater for the omnichannel customers and adjust to a new way of shopping.