Planning reforms needed in NZ bulky goods market

FOR IMMEDIATE RELEASE  22 August 2008

Planning reforms needed in NZ bulky goods market

Auckland, NZ (22 August 2008)

Inconsistent planning and building regulations are hampering the development of the bulky goods sector in New Zealand according to CB Richard Ellis Director of Retail Services, Erin Palmer.

Speaking today at CBRE’s annual Market Outlook breakfast in Auckland, Mr Palmer said forecast population growth throughout New Zealand would drive retail sales creating demand for additional bulk retail centres in key markets.

But the industry was facing considerable challenges - key among them high construction costs and a lack of appropriately zoned land.

“In order to achieve the economies of scale our Australian counterparts do, we need to simplify our planning and building regulations,” Mr Palmer said.

Sales of hardware, appliances and homewares grew by 83% in New Zealand between 1997 and 2007 to reach $5.7 billion.

With total retail sales in New Zealand forecast to reach $100 billion by 2026 - and with bulky goods retail sales already accounting for 8.8% of the country’s total retail spend - Mr Palmer said it was likely that bulky goods sales would top $10 billion within the next two decades.

At present, Auckland has 356,000 square metres of dedicated bulky goods centres, with a further 113,000 square metres in Wellington and 85,000 square metres in Christchurch.
Mr Palmer said these developments had occurred over the past decade, reshaping the sector from “clusters of large tin sheds with little amenity” to one which was characterised by integrated retail centres such as Botany Town Centre.

Population growth and New Zealand’s “love affair with retail’ was driving plans for the next generation of bulky goods centres, not just in Auckland but in provincial markets such as New Plymouth, Timaru and Invercargill.

“The challenge for many of these developments, and in particular the provincial developments, is they are often marginalised due to the lack of appropriately zoned land the size of the trade catchment,” Mr Palmer said.

“New Zealand has 73 District Plans that govern our planning environment and there is a huge degree of inconsistency between one Council’s plan and another. Developers and retailers need to lobby central and local government, as the Bulky Good Retail Forum does in Australia, to gain consistence planning regulations so as to achieve economies of scale, reduce costs and bring more supply to the market.”

In this environment, Mr Palmer said developers would need to employ certain strategies in order to secure retailers at sustainable levels. Strategies to consider include:

• Providing small tenancy sizes. “When pushed, Councils will - as a rule of thumb – allow approximately 20% of the centre’s tenancies to be less than 1,000 square metres,” Mr Palmer said. “These smaller tenancies will attract a higher average rent but also allow diversification of use in the centre.”

• Consider stepped rentals. “This is a simplistic method of securing rental growth whilst providing a soft opening for a retailer,” Mr Palmer said. “Retailers seek certainty in their cost structure and respond well to formulas that map out their future rental costs.”

• Amortise fitouts. “Retailers are often cashflow rich but capital poor, especially in today’s trading environment,” Mr Palmer said. “To unlock their cashflow, developers may need to assist in fitout and recover this through a direct or indirect rent. There are depreciation advantages with this, but also a greater exposure to tenant default.”

In conclusion, Mr Palmer said the market remained active as retailers sought to reposition stores while planning for further growth.

“Whilst the market is challenging, if you adopt a long term position and have a fundamentally good location, then you will realise good, long term growth.”

About CB Richard Ellis
CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2007 revenue). With over 29,000 employees, the Company serves real estate owners, investors and occupiers through more than 300 offices worldwide (excluding affiliate offices). CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. CB Richard Ellis is the only commercial real estate services company named one of the 50 “best in class” companies by BusinessWeek, and was also named one of the 100 fastest growing companies by Fortune. Please visit our Web site at www.cbre.com.

ENDS

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