Big players in the property investment market have led the charge for well-located retail assets, and with economic recovery slowly underway, there’s opportunity across the broader New Zealand retail sector.

Bayleys national director retail, Chris Beasleigh says there’s no way to sugar coat things, it’s been a tough run for retail with many businesses not able to take the blows dealt by high interest rates and inflation, escalating operational costs, rising unemployment, and sluggish consumer sentiment.

“Although the drop in interest rates and inflation clawback is having some positive impact on consumer spend and business outgoings, it’s still pretty tough out there for retailers. We wouldn’t expect to see tangible uplift in retail activity and business fundamentals until late this year as gains flow through to tills.

“Those operators that can cling on for another winter should see better economic times come summer. Some smaller operators have been agile, adapting business models and carrying fewer staff but not making a lot of money, while the big guys seem to be in sale mode every other week.”

Retail spend has fluctuated across sector categories. Based on Stats NZ data, some recent stabilisation hints at cautious consumer optimism, but spending is still below peak levels seen before inflation spikes.

Vacancy rates blended

The latest New Zealand Retail Market Update from the Bayleys Insights & Data team outlines that New Zealand’s retail property market is also showing tentative recovery across leasing and sales.

It’s not a one-size-fits-all, explains Beasleigh with leasing performance remaining location-dependent and with vacancy rates blended across town centre, large-format and trade-retail properties.

“Suburban retail has fared pretty well overall and has been well-supported by hybrid work models that have kept people working partially – or fully – from home or in satellite locations close to where they live.

“Whereas the vacancy rate in CBDs across the five major cities is sitting at more than 10 percent, with operator churn beyond what we would generally expect.”

RNZ Checkpoint reported 24 shops were empty or for lease along Newmarket’s main retail strip, Broadway – once an Auckland city fringe retail hotspot. Stalwart retailer Smith & Caughey’s closed its Newmarket store, referencing competition from new malls, emergence of more standalone luxury brand stores, and online shopping.

“We have a Newmarket client with a retail tenancy that’s been vacant for 20 months, and he’s now looking to drop the rent by 30 percent to get it leased deeming that some income is better than none,” says Beasleigh.

“Big landlords can absorb that sort of hit, but smaller owners relying on short-term leasing to maintain occupancy would take a big valuation drop. Across the board, landlords who are prepared to work closely with tenants to structure an advantageous lease for both parties will be better-positioned once the market corrects – and it will get better.”

A survey of Bayleys retail brokers around the country shows that leasing sentiment is shifting toward neutral or slightly positive territory thanks to falling inflation and easing of interest rates. They also highlight a clear divide between retail asset classes, with well-located, high-performing properties seeing rent growth, while weaker assets face longer vacancies or rental drops.

“Many brokers believe the retail investment market has now moved into a ‘neutral’ phase, and although interest rate cuts are positive, persistently high bond yields are tempering expectations for rapid recovery in retail property yields or capital values,” explains Beasleigh.

Large-format retail has been the darling of the retail sector offering investors more stable rents and strong occupancy, with retailer businesses drawn to the foot traffic, parking, and logistical advantages these well-located centres boast.

“Gyms are doing very well and we’re seeing good uptake for space, as people prioritise health and fitness, and return to structured group exercise classes post-pandemic. I’ve also been surprised at how well the homewares sector has held up, too, and while fashion is a bit up and down, some operators – like online retailer Shine On – are in expansion mode.”

Global interest

Despite subdued economic conditions, international retailers still want a presence in New Zealand with several brands biting the bullet and expanding here, having identified potential for future growth and market penetration.

“When American multinational Costco set up shop in New Zealand, other international brands sat up, watched, and acted,” says Beasleigh.

“Australian headquartered Kmart continues its march around the country, Britain-based JD Sports has opened a branch in Christchurch following success with five other stores in Auckland, Hamilton and Wellington, while South Africa-based retailer Panda Mart has opened in Christchurch off the back of its successful Pakuranga store.

“Panda Mart is reportedly looking at other new sites but will likely need design-builds to get the required footprint for its business which sources homewares, toys and other products from major export manufacturing hubs in Yiwu and Fujian, China.”

Swedish furniture retailer IKEA will open its first and much-anticipated New Zealand store in Sylvia Park, Auckland at the end of this year, along with a distribution/logistics hub at the airport’s industrial precinct in Māngere.

“Kiwis love a new entrant to the market and no doubt they’ll be camping out waiting for IKEA doors to open,” says Beasleigh.

“But what New Zealand consumers seem to be hanging out for is a viable alternative to the existing supermarket duopoly, with German retailers Aldi and Lidl being name-dropped as brands shoppers would like to see here.

“That said, we’ve seen a rise in Asian supermarkets in Auckland, and Bayleys has concluded a number of leases for these operators in well-located suburban precincts.”

While cost rises across value chains and geopolitical uncertainty are not helping New Zealand retailers, the US tariff story could play into New Zealand hands says Beasleigh as Chinese and European manufacturers look for new markets to sell their goods.

“Along with the rest of the world, we’re playing wait-and-see but there could be significant structural change for retailers here.”

Keeping the lights on

Seemingly not a day goes by without media coverage of another hospitality business closing, with Beasleigh saying hospo is overrepresented in business liquidation data.

“It would appear that Wellington hospo has been hit hardest out of the main centres, Christchurch is doing well, Queenstown is enduringly buoyant, and despite many high-profile closures, Auckland is ticking along with new businesses opening almost as quickly as others shut.

“From what we’re seeing, in most cases it’s not actually the rent itself that’s the culprit – it’s escalation in the pure costs of running a business in today’s economic and social climate.

“There are so many factors at play here – from rising food and wage costs, high rent and compliance outgoings, and the public reining in discretionary spending. And when looking at the main centres, it’s not simply a matter of getting workers back to the office to support CBD hospo outlets – it’s way bigger than that.”

Across the Tasman

With a traditional lag between Australia and New Zealand trends, investors and retail business owners could take heart from insights noted by Bayleys global real estate partner, Knight Frank in its April 2025 Australian Retail Review.

The firm reported retail sales growth of 3.6 percent year-on-year to February 2025, with forecasts predicting continued strong growth throughout the year as consumer spending recovers. Knight Frank says major retailers reported steady profits in FY25, following strong growth in profit margins in FY24, where the top 20 shopping centres experienced 5.5 percent growth in moving annual turnover, indicating improved retail sales.

On the investment side, deal flow has risen strongly in Australia with $9.9 billion of retail investment property traded in 2024, with private investors accounting for 45 percent of total acquisitions.