Changing consumer habits push Dunedin retailers to new locations

An increasing number of shop vacancies are cropping up in Dunedin’s prime George St shopping precinct as national and internationally-branded stores head for the city’s malls and the suburbs, according to new research.

Data from real estate agency Bayleys show changing consumer habits and the need for bigger floor plates are driving a retail exodus from what was once Dunedin’s heart.

Bayleys researcher Goran Ujdur said the three undercover shopping malls in George St had been the primary beneficiaries of a ‘reshuffling of the decks’ by some of the larger national/international consumer-goods retailers. 

“This has resulted in vacancies becoming increasingly evident in sections of the traditional ‘golden block’ of George St bounded by Hanover and St Andrew Sts,” Mr Ujdur said.

“Currently there are six vacancies in the ‘golden block’ – which is something not seen in this location for some five years, with traditionally no vacant tenancies in this location … let alone six.”

Mr Ujdur said that secondary – or less attractive retail precincts in Dunedin – which historically had been regular underperformers with high vacancy levels – were now enjoying a new lease on life.

“Many landlords within these areas are becoming increasingly aggressive with their rents, which has resulted in an increase in demand – especially from independent boutiques, clothing and giftware retailers,” he said. 

“In some instances the rent differential is as much as $500-600 per square metre between the prime and secondary precincts, which are literally just around the corner from George St in the likes of Hanover and Great King Sts.  

“The result has seen retail vacancy levels for secondary locations fall, while vacancy levels for the prime locations are increasing.”

Mr Ujdur said the smaller floor plates on offer in Dunedin CBD had also seen gravitation toward the city fringe by bigger ‘bulk retail’ brands such as Guthrie Bowron and Mitre 10.

“DIY decorator and home handyman stores have mushroomed from being corner-store type operations into ‘everything under one roof’ department stores. As a result, they have sought bigger and bigger premises to showcase their product ranges, and have consequently shifted gradually but consistently toward the east over the past -decade.

“This has had a negative impact on general CBD activity and pedestrian counts. The ample and convenient parking for no charge on these city fringe locations has proven to be a large drawcard for shoppers. 

“The issue of parking meter charges in the CBD is something the council will have to look at if it is to continue supporting retail activity in the heart of Dunedin.

On the central city office market, Mr Ujdur said that Dunedin – like many regional centres around New Zealand – was suffering from an oversized CBD compared to the city’s employment capacity.

“With the greater proliferation of city-fringe office locations, traditional CBD office and warehousing space needs to be reworked to be more meaningful for today’s needs,” he said.

“This process has already begun in the southern part of the CBD around the Vogel St precinct, where many of the character warehouses are being successfully converted into multi-use purposes – including residential dwellings and niche retail or food and beverage outlets.

“Office occupier demand is now largely focused on redeveloped mixed-use buildings – with little interest in older buildings built before the early 1980s unless they have been refurbished. For many building owners though, the cost of seismic strengthening on top of the standard refurbishment outlays makes the cost/benefit of such an exercise marginal at best.

“Rents in such older and unimproved buildings are generally facing downward pressure in the short term due to weaker business confidence and activity.”

The Bayleys research also highlights that Dunedin’s industrial property market was also running a ‘two-speed’ economy based on the quality of the premises and its location.

“Most of the older leasehold stock is located between the CBD and port area and has been in decline due to a lack of certainty surrounding ground rent reviews. There are no known developments in this area, and much of the older and increasingly tired looking buildings are being offered at low rents,” Mr Ujdur said. 

“Tenant demand remains weak and is unlikely to change unless greater certainty on ground leases occurs, or the ability to convert the tenure to freehold occurs.

“Our market survey feedback notes there is an adequate supply of industrial property in Dunedin. The lack of occupier-demand is more about pricing – especially when older secondary stock is renting for less than half the rents being achieved for prime properties.” 

Scott Cordes writes for Bayleys Real Estate