Increased confidence levels both from Rotorua consumers and businesses continue into 2015. General trading conditions are also looking positive, with the majority of the Rotorua business community expecting conditions and economic activity to increase over the course of the year, according to the Rotorua Business and Public Confidence Survey, conducted by APR consultants. Businesses also expect increases in profits and in turn to be able to employ more staff and invest in their businesses over the year to December 2015, providing a positive economic backdrop for the city’s commercial and industrial property markets.
IndustrialThe industrial sector has continued to be the top performer in Rotorua over the past twelve months. Although, according to Telfer Young’s most recent vacancy survey, overall vacancy in industrial stock has increased to 10.3% from 7.6% a year earlier, the increase is almost certainly temporary. The increase is down to two large sites on the eastern side of the city being vacated. In both cases however, the sites are to be upgraded or redeveloped with a new occupier having already been identified for one of them. The ex Tachikawa Mill is currently being upgraded for Lumbercube, a pulp and paper company which is one of the largest employers in Rotorua. The ex Sealed Air location is pegged for a suburban retail development, while currently vacant, therefore having a negative impact on overall vacancy figures. Telfer Young noted that over the next twelve months, vacancy levels in the industrial sector ought to return to normal. The industrial sector is currently the most active of the commercial and industrial sales markets with owner occupiers successfully competing with investors.
Over the last year the bulk of purchasers have been owner occupiers. Agency reports advise that yields as low as 7% have been achieved at the prime end of the market, albeit that the average rate is approximately 8.5%. Commercial stock is noted to be performing well if located on or close to a main road and in close proximity to the city. More remote precincts however have proved to be less successful, for example the Eastgate Industrial Park, located 9km from the city, which was developed in the early 2000’s is still only half occupied. Future growth however will have to take place further from the city as industrial land supply close to town is extremely limited.
There has not been any significant movement in industrial leasing trends over the past year, despite improvements being flagged. Those improvements had been indicated with the belief that lower vacancy rates will continue, and this has not been seen over the past twelve months. Industrial investment property remains very tightly held in Rotorua, with owners preferring to retain higher running yields from property rather than lower bank deposit rates. Agency reports suggest that competition for investment stock is increasing as a result of a lift in buyer enquiry from out of town buyers particularly for good quality stock with strong tenants.
The Rotorua retail sector is a polarised market with a sharp contrast between prime and secondary property, with a key issue being the older stock in the CBD requiring upgrading and seismic strengthening with no upside for the owner. As a result agency reports advise that they are seeing greater activity in the fringe areas rather than the CBD.
A further hindrance for the city centre is that approximately 10-15% of the CBD retail is made up of leasehold properties which are causing problems with vacancies and maintenance.
The majority of these secondary leasehold properties are on Amohau Street, a four lane state highway opposite the newly upgraded Central Mall which attracts 700 pedestrians per hour. The council envisions attracting some of this high pedestrian count across the road to the boutique CBD shopping area of Tutanekai Street which currently attracts 200 pedestrians per hour, making Tutanekai Street the spine and connector between Rotorua Central Mall and the lakefront. Another highly charged topic of debate regarding attracting people back to the CBD is whether to remove or change the current “City Focus” meeting point, where traffic flow and view is affected by large sails and a small information centre. There is presently a large discrepancy between one side of the City Focus and the other, with regards to retail quality. Should the sails be removed/changed and restricted traffic flow be opened, it is argued that the secondary end of Tutanekai Street retail will benefit.
New retail offerings at the Redwoods Centre and Fairy Springs suburban outlets, developed and built by local developer TPB Properties, have received strong demand, commanding yields as low as 5.9%, from a combination of local and out of town investors. It is when comparing the CBD to these modern suburban shopping centres that the polarisation of the market becomes clearer. With the successful sell down of new units within the suburban areas there is now a shortage of high quality new retail outlets for investors given that much of the CBD stock is older and of lower quality.
The council is looking at a number of initiatives in order to attract visitors and shoppers back to the CBD. The initiatives are captured within the CBD Revitalisation – Urban Design Framework and include a proposed green corridor which links to multi use bike paths through the CBD.
The overall retail vacancy reached an all time high of 16.2% in 2014 due primarily to the large number of secondary quality shops being vacant, at 37.4%. The Rotorua Central Mall and Tutanekai Street are the prime retail shopping areas of Rotorua, having the highest pedestrian counts respectively within the Rotorua CBD. Traditionally low vacancy rates have been common in those areas. However it is very apparent that vacancies in Tutanekai Street have increased dramatically. The Rotorua Central Mall has been redeveloped and the retail mall is now fully leased since its early 2014 completion. The lowest vacancy rates in Rotorua CBD now are found in the Rotorua Central Mall, Eat Streat, at the northern end of Tutanekai, Street and surrounding the Rotorua Tourism Centre on Fenton Street.
Vacancy rates continue to be highest for properties in fringe locations away from the main arterial routes, where in the CBD we may start seeing more retail to office conversions as seen with the East Brewster Building on Pukuatua Street.
The two tier market continues between prime and secondary space within the office sector. Local development and construction company, R&B consultants, has been contracted by a number of businesses for purpose built prime office space, due to a shortage of suitable premises. R&B Consultants is currently completing the new Glen Hawkins and Associates building with a GFA of 1,184m² on Fenton Street. Other purpose built office projects underway are the ACC building on Pukaki Street, and Department of Corrections buildings in Haupapa Street.
The Rotorua District Council (RDC) released its earthquake prone risk assessments in November 2013 with high risk properties having one year to get a building report and five years to remedy, with more time for medium and low risk properties. The Government recently announced changes to their national earthquake strengthening policy, which will reduce the number of buildings needing assessment from an estimated 500,000 to 30,000, under three categories across New Zealand – low, medium and high seismic risk zones with timeframes for assessment of 5, 10 and 15 years and strengthening of 15, 25 and 35 years. Whilst the proposed national policy is of interest, the RDC has announced their policy remains unchanged. There seems to be no obvious trend following the council assessments at this stage. It is apparent that major national companies and government tenants require office space that rates at least 67% or higher, per the New Building Standard.
The latest Telfer Young 2014 office vacancy survey shows the vacancy rate has increased 130 basis points to 18.8%, but is still lower than the GFC peak of 21.5% recorderd in 2009.
There has been a reduction of two vacant tenancies from 2013 to 64 vacant in 2014, but the total floor area of office space has decreased overall by 669m2² from 2013 to now sit at a total of 107,881m²2. Vacancy for average and poor quality space has stayed static, sitting at 21.3% and 34.2% respectively and good quality space has 3,683m² or 8.7% vacancy. This suggests there has only been limited continued adaptive re-use of this space and a small degree of refurbishment. Prime yields have tightened slightly, closing up to between 8% – 9% as supply is scarce.
The RDC is embarking on a journey curating a positive future for Rotorua by 2030 in their Revitalisation Strategy which will run parallel with the development of the Council Long Term Plan 2015-2025. The seven goals which were identified in the strategy were:
- A resilient community;
- Homes that match needs;
- Outstanding places to play;
- Vibrant city heart;
- Business innovation and prosperity;
- Employment choices; and
- Enhanced environment.
With the first milestone date of 2016, the main focus of this revitalisation strategy is to develop a vibrant CBD that attracts people and activity, which will in turn aide in developing the economic base by attracting new and growing existing businesses to the region. Rotorua holds many attractions for business operators and investors and as a place to live, and with council strategies such as this in place, along with the confidence in business and economic activity by the Rotorua public, it all bodes well for the future of Rotorua.