Having previously covered industrial and office properties, this week we turn our attention to the retail sector.
As with most other classes of property, retail can be broken down into numerous categories including CBD (central business district), fringe CBD, neighbourhood shopping centres, mall shopping and bulk retail.
It is important to understand the varying requirements for each of these categories.

CBD retail will require good pedestrian numbers, maximum shop frontage and good shop shape. The frontage is vital as this is the retailer's window on to the world in terms of promoting products. The shape of the premises is vitally important too as no retailer wants a long, narrow tenancy. Indeed, such is the importance of shape that the valuation profession applies what are known as depth tables to valuing retail space. Under this system, the first 15-20 metres of retail space will command the highest dollar per square metre rate, whereas, the further back from the frontage you go will see a reduction in this rate.
Suburban or neighbourhood shopping centres on the other hand will also, in addition to frontage and shape, require excellent on-site car parking and visibility (or profile) with regard to passing traffic. Such centres are designed to cater to the daily needs of the surrounding residential area and will normally contain businesses such as a dairy, hairdresser, takeaway bar, café, video, chemist and lotto agency.
In contrast, the mall will contain a handful of large anchor tenants along the lines of The Warehouse, supermarket and Farmers with an array of specialist shops as support. Typically, these shops will often be national or international tenants or franchises. Brands such as Glassons, Michael Hill, Hallensteins, Portmans, Whitcoulls will constantly feature in such malls.
Additionally, draw-cards such as food courts and cinemas will round off the mall model.
Malls rely on intense research of their catchment areas in terms of demographics and population growth to succeed. Where competing malls are relying on business from a single catchment area, there is usually some fall-out in terms of tenants struggling for turnover or vacancies increasing.
In the early 1990s, I was fortunate enough to attend a seminar in Auckland where one of the speakers managed a retail investment fund in the United States with a value of US$4 billion. His frank admission that, at any point in time, one third of the portfolio was either in bankruptcy, going into it, or just coming out of it was a real eye-opener for me. In fact, so desperate were mall owners to gain some advantage over the competition that they were prepared to offer a draw-card tenant a 10 year rent free period. At that time, the tenant in demand was the fashionable Rainforest Café, which provided customers with a genuine rainforest setting which was incredibly expensive to fit-out.
He also gave the example of one mall under his management which was going broke in the face of a new mall that had been built just 2kms away. To turn things around, they rebranded the first mall as the discount mall by allowing the existing tenants to relinquish their leases and putting in only discount brands. The change worked and that mall came back to life.
Retail experts will still say that New Zealand is under shopped in the mall area compared to Australia and elsewhere overseas. However, the United States experience covered by the speaker at the seminar certainly makes me wonder about how many more malls New Zealand can handle.