New Zealand Retail Property: Navigating a Sector in Flux

Michael Hall, Regional Director

For many retailers, a portion of shopping activity has moved online, affecting demand for retail space, especially in unmodernised high streets and strip malls.

The post-COVID retail property landscape in New Zealand is marked by shifting consumer behaviour, structural economic changes, and an evolving tenant profile. While some locations continue to thrive, others face reducing rental levels, vacancies, softer demand, and longer lease-up times.

"The property market in general has softened since the post COVID boom of 2021, and retail has arguably suffered more than other sectors in this cycle," said Opteon Regional Director Commercial and Industrial, Michael Hall. "Some areas have recovered more than others. It is a real mix."

“The overall trend is less demand from buyers, largely because the future upside feels more uncertain,” Hall added.

Retail Headwinds and Risk Factors

Online shopping, flexible working, and broader economic pressures are reshaping the viability of retail property investment in New Zealand.

“Demand has softened which in turn impacts a shops achievable rental level, which can further affect a properties value,” said Hall. “For example more recently we have also seen a trend of various established hospitality business's closing. As a landlord, your risk of tenant failure is higher than it used to be”

eCommerce and the Decline of In-store Spending

One of the most profound impacts on bricks-and-mortar retail is the continued rise of eCommerce.

According to New Zealand Post’s latest Business IQ report, online shopping reached record transaction levels in 2024. In-store spending declined 2.5 percent year-on-year, highlighting a shift in Kiwi consumer preferences (source: NZ Post BusinessIQ – 2024 Ecommerce Insights)

This trend places pressure on the need for physical retail spaces in prime localities particularly in secondary or suburban locations. “With warehouses, there is a general belief in the market place there will be continued demand for storage and manufacturing space, and possibly even a shortage. That gives people confidence there will be rental growth and value appreciation in medium to long term regardless of more short term changes. Retail does not appear to offer the same level of certainty currently”

The Temu and Shein Effect

The cost-of-living crisis has driven more and more Kiwi consumers to Chinese low-cost websites, such as Temu and Shein. A 2023 survey by Tearfund New Zealand found that 25 percent of Kiwi adults had shopped with Temu.

Internationally, these platforms have already reshaped the fashion retail landscape. In the United States, Forever 21 and other legacy chains have struggled to compete.

Here in New Zealand, the impacts are most visible in smaller malls and centres, said Hall.

 "If your tenant’s business fails, as a landlord you are potentially looking at a lengthy period with no rental income, OPEX to pay and finding a new tenant is not an easy or quick process currently,” Hall said. “It’s not uncommon to have a 6-12 month vacancy period, be required to carry out some form of refurbishment to attract a new tenant, [or] offer rent-free periods. Before you know it, you may have lost 9 months rental income plus incurred other substantial costs. That is a risk many investors are looking to avoid currently or factor these risks into the price they are willing to pay”

Why are some retail sectors thriving?

Despite growing challenges, some segments of retail property market in New Zealand have shown resilience. Prime locations in major centres remain strong, especially where landlords have invested in tenant experience and
curated offerings.

Having anchor tenants or strong brands in the mix also helps. “If you’ve got a strong brand or a big name, that helps draw others in.”

Even traditional retail success factors continue to play a role. “Foot traffic and a good location is still important,” said Hall. “Rent levels have always been stronger where foot traffic is higher.”

That said, suburban centres are experiencing mixed outcomes. “Some areas are quieter than they used to be. Some of that is probably due to work from home influence” Hall added.

Changing Retailer Strategies

Larger retail chains are consolidating in malls or high-foot-traffic hubs, moving away from strip retail.

 “We don't see them in standalone strip retail like you used to,” Hall said. He even sees the shift in his own habits. “If I am shopping, I am typically going to a mall.”

The Current Retail Property Landscape

Retail spending remains under pressure, and capital values are mixed. Interest rate cuts have yet to translate into stronger asset performance.

 “We are not seeing a big change from lower interest rates yet and property values have not bounced back to 2021 levels,” said Hall. “Markets are generally not that fast-moving. It could take some time for the effect of lower interest rates to flow through and have a real impact."

Work-from-home trends have added further complexity. “If half your office workers are not there, they are not buying lunch or going out after work. That impacts retailers,”

“That said, we are beginning to see a shift, with more businesses requiring people back in offices together with employees wanting to return to the office is some capacity but it is still not where it was.”

Earlier optimism in 2025 has been tempered by global uncertainty. “Earlier this year felt more positive, but international issues, like what is happening in the United States, seem to have stalled that. We are back to a wait-and-see environment.”

Oversupply is another growing concern. “That adds to the pressure.” Hall noted.

Future Outlook: Invest or Repurpose?

The shift away from outdated high-street models is structural, not cyclical.

 “It is not like previous years where often you could lease a building regardless of condition. You need to invest in it for the long term and attract good tenants,” said Hall.

“We have seen a real decline in demand for C- and D-grade space potentially where landlords do not want to invest in capital expenditure and the buildings are quite dated,” he added. “We probably did not have that gap in demand pre-COVID.”

Changing space requirements are another factor. “An obvious example are Banks retail stores which were historically located in prime retail positions but have been closing in recent years or shrinking in size. You also do not see large clothing stores as much anymore,” Hall said.

Landlords can adapt, but investment is crucial, he said. “If [landlords] are able to refurbish their buildings and upgrade them to differentiate themselves, that is definitely beneficial. But there is obviously a cost versus upside equation you have to consider.”

For some assets, adaptive reuse may be the only option. “It’s expensive and not as easily done as it may appear. But if you cannot get traditional tenants, you may have to look at repurposing the building.

“Make them smaller or multi-use.”

Conclusion: A Market in Transition

Retail property in New Zealand is undergoing significant transformation. While the outlook is uncertain, opportunities exist for those willing to invest, reposition, or repurpose.

The rise of eCommerce, changing consumer habits, flexible work, and economic headwinds are not short-term trends. They are reshaping the retail property sector from the ground up.

This is unlikely to be a temporary dip. The fundamentals are being rewritten. For those willing to evolve, there’s still opportunity. But holding on to outdated models is a fast track to vacancies.