A strong education and research sector forms the backbone of Dunedin’s economy and is the city’s most significant employer generating in excess of $200m annually for the local economy. Approximately 20,000 students are enrolled at the University of Otago, around 16% of the city’s total population of 120,000. Not surprisingly Dunedin has the highest proportion of workers employed in knowledge intensive industries in the country. The University will provide a further boost to the local economy over coming years with around $650m worth of new buildings and facilities planned.
Dunedin also feeds off Otago’s strong rural sector which covers dairy, sheep and beef farming however the current weakness in commodity prices is having a negative flow-on impact on the city with many farmers deferring major investment decisions. Despite this, Port Otago has recently announced plans for a $30m upgrade to deepen the shipping channels to Port Chalmers to ensure its long term competitiveness and ability to cater for the next generation of super-sized container and cruise ships. Works to deepen the channel to 14 metres are expected to be completed by end 2016 along with $85m of capital works on a new deep water berth.
Dunedin has a relatively compact, conservative and orderly commercial property market. Much of the investment stock is owned by local investors who have held properties for many years with little debt attached. Like Wellington the city is fringed by hills and a Port so there is not a lot of new land to develop. As a result, much of the activity in the CBD tends to be centred on the redevelopment of exiting sites. In particular the area to the south of the CBD known as the Vogel Street precinct is undergoing a metamorphosis from early settlement warehouses and head offices to new uses including residential and office functions.
Weaker business growth and confidence is having an impact on leasing activity which has weakened particularly in the retail and office sectors. There are now a considerable number of retail vacancies in the main retail strip – George Street – which is a new phenomenon for Dunedin. This has prompted Dunedin City Council to invest in upgrading public spaces with major makeovers of the CBD streetscape planned.
Prime retail in Dunedin’s George Street, historically considered to be a strong sector, is under some pressure at present. With rents along the strip being increasingly set by national and international retailers requiring space along the golden block, smaller national and independent stores have struggled to maintain a presence due to the high rents. The three undercover Malls in George Street are performing well and have been the primary beneficiaries of a reshuffling of the decks by some of the larger national/international retailers. This has resulted in vacancies becoming increasingly evident in sections of the traditional golden block of George Street (bound by Hanover and St Andrew Streets). Currently there are six vacancies in the Golden Block which is something not seen in this location for a number of years, with traditionally no vacant tenancies in this location.
Secondary retail premises in Dunedin, which historically have been regular underperformers with high vacancies, are in fact having 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/giftware retailers. In some instances the rent differential is as much as $500 to $600 per sqm between prime and secondary rents which are literally just around the corner from George Street. The result has seen retail vacancies for secondary properties fall while those for prime increase.
Bulk retail premises such as Guthrie Bowron and Mitre 10 which historically had been located in the CBD have shifted towards the east over the past few years in a large big box bulk shopping centre. This has had a negative impact on CBD activity and CBD pedestrian counts according to agency feedback. Ample and convenient parking for no charge has proven to be a large draw card for many shoppers at the Bulk Retail Centres.
Like many regional centres around New Zealand Dunedin is suffering from an oversized CBD which needs to be reworked to be more meaningful for todays needs. This process has begun in the southern part of the CBD known as the Vogel Street precinct where many of the character warehouses are being successfully converted into multi-use purposes including residential.
Dunedin’s office market caters to two primary groups. The first are small operators who service traditional local businesses such as lawyers, accountants, valuers and the second, a uniquely Dunedin niche, are a number of research and development businesses such as Fisher&Paykel, Pacific Edge and BLIS Technologies which have close links to Otago University.
Office occupier demand is largely focused on redeveloped mixed use buildings with agency feedback suggesting little interest in older 1970s/1980s office buildings unless they have been refurbished. For many 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.
Office rents generally are facing further downward pressure in the short term due to weaker business confidence and activity. The investment market continues to be dominated by local investors with many deals done off-market.
Dunedin IndustrialDunedin’s industrial market is largely divided between prime located but older secondary quality leasehold properties and more modern tilt slab properties on the outskirts of town. 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 reports of developments in this area, and much of the older and increasingly tired looking buildings are being offered at low rents. Demand currently remains weak and is unlikely to change unless greater certainty on ground leases occurs or the ability to convert the tenure to freehold occurs.
In terms of newer industrial builds much of this construction activity occurred between 2008 and 2010 and again at slightly lower levels during 2012. Since then building consents have stabilised at lower levels.
Most of the industrial development activity revolves around design and build projects.
Calder Stewart’s development of the old Carisbrook site (30,604m2) into industrial parcels has yet to find an anchor tenant.
Market feedback suggests 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.
Overall Dunedin has a reputation for being an easy city to do business, with a strong knowledge base, an ever expanding pool of creative and high-tech enterprises, quality amenities and a great lifestyle. Proof of this is found in businesses such as Escea, Pacific Edge, Fisher & Paykel Design Centre, Igtimi Limited, BISON and BLIS who have emerged from Dunedin to produce cutting edge, world class products and services over a sustained period of time.
Winning the recent national Gigatown competition should act as a further catalyst to draw internet based businesses to the city. Dunedin currently has the fastest internet speeds available in the country at discounted rates, so companies heavily reliant on internet speeds could benefit from such a move.
Air New Zealand has recently increased the size of the planes it flies into Dunedin and coupled with direct flights to Brisbane, Sydney and Melbourne and domestically to Auckland, Wellington and Christchurch it should boost access to other markets for goods, services and people.
At a broader regional level Otago contributes 4.3% of national GDP, along with providing 5% of national employment and is home to 4.8% of New Zealand’s population. Dunedin city’s population growth rate has tended to sit just under the national growth rate, increasing 1.3% between the 2006 to 2013 census years.