A two-tier leasing market grips central Queenstown as commercial tenants sidestep second-rate spots and flock to new A-List locations.
That’s the view of commercial real estate specialists Colliers International, launching their latest overview of the local market.
Retail, restaurant and bar rents are trending up in prime positions but trickling down elsewhere, Colliers reports.
It’s a similar story with offices.
Upper floors of swish new buildings are almost all spoken for, resulting in an over-supply of secondary space as lawyers, accountants and their like move up in the world.
Colliers leasing broker Mary-Jo Hudson spells it out. Prime downtown retail is full, she says – demand exceeds supply.
Rents for prime retail – the category includes food and beverage outlets as well as shops – run at $900-$1100 per square metre per year, Hudson says.
Competition for top spots is tight – for example, three retailers vied for the space won by Macpac in Skyline’s new building on Beach Street, she says.
In turn, there’s downward pressure on rents in secondary retail locations – these run at $300-$600 per sq m, she adds.
As little as 10 metres of distance can separate A-List retail from B-List, Hudson’s colleague Mark Simpson says.
A tenant in upper Shotover St paying $600 per sq m can’t get their head around rents of $1100 just a block away, he says.
“Absolutely right,” Hudson agrees, citing big variations between Earl and Church Sts or between Church St and The Mall.
Prime retail rents are unlikely to ease.
“They’ve certainly firmed up and as long as you have a situation where there’s not enough supply and plenty of demand, you’re always going to get upward pressure on the rent.”
Hudson points out big surprises in the office market.
Despite new buildings adding more than 50 per cent to office capacity in Queenstown’s CBD, almost all new space created – 92 per cent of it – has been soaked up.
And the pattern echoes retail trends.
“I think people will be surprised – they think there’s all this office space around town but the prime space is pretty much full,” Hudson says.
“There’s vacancy in the secondary office market and that’s come out of big firms moving and leaving holes behind.”
With a 12 per cent vacancy rate in total CBD office space, landlords staring at bare walls have two choices, she says.
“They either lease them as they are – but it’s going to be slow to re-lease – or they look at refurbishing and remodelling, throwing some money at them.”
The over-supply of secondary office space could see a return to incentives such as free fitouts and rent holidays, Hudson says.