Christchurch retail property remaining resilient despite consumer spending challenges

Retail property in Christchurch is showing resilience in the face of challenging consumer spending conditions, with prime CBD and large format retail the stand-out performers.

CBRE research shows rents have increased across several sub-sectors of the retail market, highlighting the strength of retail property fundamentals in high-demand precincts despite the downturn in household spending.

Prime Christchurch CBD retail rents have shown exceptionally strong growth, due to high tenant demand for space fronting Cashel Mall. Prime CBD face rents increased by an impressive 14% in the second quarter of 2024, compared with the first quarter. 

Rents for Christchurch large format retail also increased in the 3.1% to 5.5% range over the year to June 2024.

Caiti Morgan, National Director of Retail Capital Markets at CBRE, says this rent growth is notable, given the tough consumer spending conditions over the past few years. 

“Consumer spending conditions are highly challenging for most retailers right now. This makes any rent growth a considerable achievement and indicates that retailers are still competing for well located retail space in Christchurch,” she says.

“The latest rental statistics, coupled with vacancy remaining low in prime CBD assets and quality large format centres, demonstrates strong underlying retail property fundamentals and the resilience of our market, despite the difficult trading environment.”

Retail vacancy and new stock

Jorge Chang Urrea, Research Manager at CBRE, says significant competition for available retail space is keeping vacancy down in select locations. 

“There was no vacancy in prime CBD retail space fronting Cashel and High Streets in the second quarter of 2024, with retailers quickly backfilling any spaces that have become available over the past year due to tenants shifting premises.”

Christchurch large format retail is also under strong tenant demand, with limited space available.

“Low vacancy shows that large format retail occupiers are still trading well in good locations, despite the current economic climate and elevated cost of living which is dampening discretionary spending,” he says.

“Quality large format centres in Christchurch with strong anchor tenants are performing particularly strongly. Northlink is a notable example, having benefited from good large anchor tenants such as Harvey Norman, which is the latest anchor to move into stage three of the development.”

Around 113,000sqm of new retail space is in the pipeline in Christchurch, much of it in Carter Group’s The Station development in Rolleston; planned to be the largest outdoor shopping centre in the South Island.

Opportunity for investors

Low vacancy, rent increases and current capitalisation rates in prime CBD and large format retail are creating an excellent buying opportunity for investors, says Morgan.

“Quality retail property in Christchurch and New Zealand as a whole has a solid forward outlook, particularly given the improved timeline of interest rate cuts. As a result, we are seeing more investors looking at the sector and several large transactions being completed around the country.”

Retail property sales made up 23% of total commercial property transactions in New Zealand in the first half of 2024, the second most-transacted sector after industrial property (31%), according to CBRE Research. 

Further retail assets are expected to be brought to the market later this year, as owners capitalise on the recent declines in interest rates and the compressed timeline for rate cuts.

Industry fundamentals in New Zealand retail property also stack up well against some markets overseas, where many retail centres are struggling with high vacancy and falling rents, Morgan says.

“Our tight supply of existing well-located retail property, combined with zoning regulations making it comparatively more difficult to bring a new retail development to market, create a stable retail market in quality centres and precincts here,” she says.

“However, the highly nuanced nature of retail property means engaging a specialist to assist in evaluating investment opportunities is prudent, as some assets are still challenged by capital requirements.”