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Surge in CBD space sparks a cut-throat contest for tenants

You might think landlords set rents but that’s not how a major Queenstown property player struck a deal last week.

Looking for a café-restaurant operator to lease the last vacant space in its almost-completed $12.5 million Camp Street/Ballarat St complex, Ngai Tahu Property asked would-be tenants what they could pay.

“Rather than try and strike a rent and then scare people off, we’ve gone the other way and said what sort of turnover do you think you’ll do, so we can actually strike a rent that you can afford,” development manager Gordon Craig says.

Last Friday, Craig signed up the quartet who own Queenstown’s Wai Waterfront, Finz and Bella Cucina restaurants to operate the Ngai Tahu building’s piazza café.

“We don’t want people to fail,” Craig says.

“We tried to strike a rent that they were happy with and we were happy with.”

He won’t divulge rent levels but says this deal and another involving local fashion retailer Decode, which is relocating, reflect a market change.

“We’d have expected those last two [rent levels] to be higher six to eight months ago.”

Shopping around for tenants “hasn’t been easy”, Craig admits.

“There’s been some good competition for tenants in town. We’ve been lucky that the building has attracted them, and the location.”

Ngai Tahu’s also fortunate it signed up its other tenants some time ago.

The other ground floor spaces in the last part of its Post Office Precinct jigsaw are occupied by National Bank on the corner, and by PostShop/Kiwibank.

The first-floor tenant is merged accountancy firm WHK Cook Adam Ward Wilson. On top will be Anderson Lloyd Lawyers and National Bank will let 140sq m of office space.

Craig expects all tenants, apart from possibly National Bank, to be in by the end of October.

PostShop/Kiwibank and Anderson Lloyd have been temporarily housed in Ngai Tahu’s adjoining building – Craig’s confident these will be leased out again “within a reasonable time”.

Within two years, he’s also picking demand for commercial space will again outstrip supply.

Meanwhile, Colliers International says the Post Office Precinct, plus the recently-completed Church St and Mountaineer buildings, the Plaza Arcade redevelopment and Skyline’s Rees and Beach streets complex currently under construction, have together added 17,000sq m of commercial space to Queenstown’s CBD.

This has seen a softening of office rents and, to a lesser degree, retail rents, Colliers says.

Developers have been enticing office tenants with incentives like fitout contributions and discounted initial rents.

But local Colliers valuer Geoff McElrea says prime retail rents have remained firm, due to low vacancy rates and strong demand from new entrants.

“A number of Australian retailers have targeted Queenstown as a destination and this has ensured that demand for space remains high, with recent leasings showing rents of around $1000 per sq m.

“Secondary and fringe retail locations have not been so resilient with a number of buildings experiencing long periods of vacancy and weaker rentals, primarily because they’re located away from the beaten tourist path, plus the additional supply of space available.”