Changing consumer habits lead to retail exodus in Tauranga’s CBD

It’s a case of ‘swings and roundabouts’ for Tauranga’s retail sector – with suburban shopping precincts booming while the central business district is in decline, according to new research.

Market analysis by Bayleys Real Estate shows retail occupancy and vacancy levels in the city have moved markedly since 2011 – with a major migration of shops out from the city centre.

Bayleys research national manager Ian Little says vacancies among CBD shops are becoming increasingly visible, and will take time to fill. 

“This is being reflected in softer retail rents in the central business district,” he says.

“Seismic strengthening of many older CBD retail premises is yet to commence. This is also slowing down the recovery in occupancy levels. 

“As a way of attracting people into the CBD, the council is considering plans to add more carpark spaces, while revamping the waterfront and other downtown public areas. This is a positive initiative.”

Mr Little says current and proposed office development activity in Tauranga’s CBD should also go some way to improving retail spending patterns. 

“The influx of a further 450 staff in Trust Power’s new head office in early 2016 should provide the CBD with a major boost in work day population,” he said. 

“Equally, the development of the Waikato University campus in the CBD over the next few years will bring in significant numbers of students and staff, which should improve retail trade as well as the general vibrancy of the CBD.

“It will see nearly 6500 students commencing studies in Tauranga between 2015 and 2035, generate an estimated $188 million in regional revenue and provide more than 600 new jobs. 

“It will also revitalise the city centre and strengthen the business case for other projects such as student accommodation – potentially through the recycling of older vacant office buildings – and the development of a conference centre and hotel facilities.”

Tauranga City Council is considering plans to increase the existing CBD carpark stock of 3400 bays by a further 650, with a proposed $25 million car park on Harrington St.

“This should also provide additional spaces for the needs of Trust Power and the university,” Mr Little said.

The Bayleys research also noted that retail activity along Mt Maunganui’s core shopping strip continued to perform well – reflecting not only the compact nature of the precinct but also continued population growth and flow-on benefits from a growing number of cruise ships docking in Tauranga. 

Meanwhile, in the city’s commercial office space sector, the research data highlighted a growing divergence between the vacancy rates in ‘prime’ and ‘secondary’ quality buildings occurring in Tauranga’s CBD.

“There are very tight conditions prevailing for better grades of space compared with rising vacancies among secondary properties,” Mr Little says.

“This is prompting an increase in development activity to satisfy demand for better-quality premises.”

Major office projects now under way in Tauranga are being spearheaded by:

• the new $25 million, three-level Trust Power building on the old Bay of Plenty Times site on Durham St, which will include 9500m² of office space, 75 carparks and will house around 450 staff when completed in early 2016. 
• the nearly-completed new $10 million mixed-use commercial and retail building on the corner of Cameron and 12th Ave which will house Westpac’s new offices. The bank is moving its area office, business banking centre and 11th Ave branch to the new centre, with up to 40 of its staff relocated to the purposebuilt premises.

“The migration of tenants to newer space will exacerbate vacancies in older buildings and ultimately lead to various forms of building ‘recycling’ – such as refurbishment, renovation or conversion. Earthquake strengthening will need to be addressed in most of these recycling projects,” Mr Little says.

Industrial property occupancy levels in Tauranga are also a vastly ‘mixed bag’ according to the Bayleys Research report – with an overall vacancy rate of 13.5 percent.

“Vacancy levels vary greatly among the key areas – with Tauriko at 0.8 percent vacancy, and Mt Maunganui at the other end of the scale with 17.3 percent vacancy,” Mr Little says.

“Tauranga has an abundance of available industrial-zoned land in and around the city – totaling more than 650 hectares. This allows for significant growth opportunities going forward but also puts a natural cap on rental growth – as any occupier demand is quickly satisfied with supply. 

“The Tauriko Business Estate in particular has seen an increase in activity over the past 12 months – with a number of new projects either under way or recently completed in stage two of the estate.”

Scott Cordes writes for Bayleys Real Estate