Commercial development continues at break-neck pace.
If Queenstown’s in a recession, someone forgot to tell commercial developers and their would-be tenants.
That’s the view of commercial specialist Colliers International’s local office.
It’s totted up construction and leasing activity in Queenstown’s commercial sector and concluded the resort is going against the grain of other regions.
More than eight sites, upwards of $200 million of
development – including land cost – is under construction and due for completion by the end of next year, says local Colliers commercial consultant Mark Simpson.
The build cost for the extra 28,000sq m of commercial space going up is $82m, he adds.
“This is a great signal of confidence from the developers and their funders in Queenstown and its long-term prospects.”
Of the eight major projects, the four biggest comprise the $16m 8436sq m Church Street complex, the 7476sq m
Post Office Precinct, which is in its last stage, the 4515sq m Mountaineer building and Frankton’s 3795sq m Terrace Junction.
Simpson’s colleague, valuer John Scobie, notes: “One of the risks with such a large amount of commercial space coming on stream is the pressure it creates on vacancies and rentals.”
But he says almost 60 per cent of the new space has been pre-leased or is under offer, “which for projects that are still up to 12 months away from completion is pretty compelling in this environment”.
Prime rent levels are being agreed at between $1200-$1600 per square metre – about double what they were five years ago.
Above-ground commercial space is $250-$350 per
square metre, depending on quality – up from $180-$200 per square metre five years ago.
Asked about the amount of vacant fringe retail, Scobie says this is no worse than it was two years ago. Prime retail rents are holding because in recent years there’s been more demand than supply, Simpson says.
He notes his firm’s new commercial leasing activity has been stronger in the past six months than the same period previously.
“I don’t know why but it does include a combination of existing tenants moving and new entrants.”
Simpson also argues some of the fundamentals underpinning our economy are stronger than they were two to three years ago.
He cites dropping interest rates, a more sustainable dollar for tourism, lower oil prices and a local unemployment rate of virtually zero.
Constructions costs may also be stabilising, although at $2000-$2500 per square metre, they’re still steep.
Contrary to popular belief, Simpson contends tenants drive rental growth, “but sometimes commercial reality is left behind”.
He cautions tenants and landlords to “look a bit harder at the fundamentals of new leases for the new developments in the current climate”.
Tenants “need to look harder at what their offering is, who their customers are and on this basis where they should be and can afford to be located”.
Landlords need to ensure would-be tenants understand their market and complement others signed up for their buildings.