Centre Place - Why sell half a shopping centre?

The recent news that part of the Centre Place shopping centre in Hamilton is up for sale came as a bit of a surprise to us. It’s an accepted norm that properties change ownership as circumstances change. However the potential “half” of Centre Place sale was very much from left field.

First, some history. It was only a few years ago that Centre Place consisted of two separate malls, across the road from each other (on opposite sides of Ward St). Kiwi Property Group had owned the larger northern mall, named Centre Place, since 1994. In 2003, Kiwi bought the southern mall, named Downtown Plaza, and set about planning to integrate the centres better. We developed Downtown Plaza originally on behalf of its then owner.

The Downtown Plaza brand was phased out and the section of Ward St between the two malls was eventually closed and covered over, creating a new and continuous shopping environment valued at almost $125 million in September 2014. Now the southern part of the mall, the old Downtown Plaza is being marketed as Centre Place South, and is up for sale. It’s a curious move, since the two parts of the mall are more integrated than they have ever been. Furthermore, Kiwi wants to retain the northern half of the mall and potentially the management rights for the south.

Perhaps we could see a joint venture come out of this process, as for Scentre Group’s alliance with GIC. It would certainly be a mistake for a new owner to come in and try to rebrand the centre, or to see themselves as “in competition” with the northern part. All rather a bit odd and not something we can remember seeing before elsewhere. In summary Kiwi are selling half of their centre!!

Hamilton as a case study is a very interesting example of the correlation between population and retail property growth. In 2004 Hamilton had a population of 130,000. Ten years later it has grown to 153,000. That’s a further 23,000 people living in the city over that 10 year period. Given that is the case, why would Kiwi Property Group want to (partly) dispose of its shopping centre in the Hamilton CBD?

We guess it’s because Hamilton has changed, rather than any other reason. Kiwi spent considerable money in refurbishing its shopping centre and it is now a complete product with a range of good fashion stores, a new department store and a quality food court together with cinemas. It is located in the heart of the city, and thereby lies the problem. The CBD has been affected by the fringe development of other retail activity. New residential growth has created new retail hubs. As a result, the CBD has come under threat.

The problem arose when the council arbitrarily allowed, some years ago, for speciality shop development to occur in the fringe areas without consideration for the CBD or the traditional “Heart of the City”. Not only did the fringe activity impact on retail, but the commercial environment that normally keeps the heart beating was also impacted.

As a result a plethora of empty shops in Victoria Street have emerged which has left Centre Place as a bit of a lonely retail offering. The replacement of empty shops on the strip with food and beverage facilities and the Casino have not been enough to breathe life back into the veins of the traditional heart.

So what does a new owner of “half” of  Centre Place do with their new investment? We said earlier that Hamilton is an interesting city with its population growth etc. That remains the case. However, the demographic of Hamilton, and as a result its consumer, is somewhat different to Auckland or Wellington. Both Hamilton and Tauranga share the same acronyms in that they are respectively referred to as $10 towns. Spend is low and there is a limitation on quality facilities as we know them.

An indication of this was the arrival in Hamilton of both well-known and respected Auckland food outlets “Farro” and” Nosh”. Both arrived at around the same time and soon departed after consumer support was shown to be below expectation. Maybe too many farmers! There was also the suggestion that their respective locations were not good also may have had some impact, but the bottom line was that the locals did not support either!

However, that is where the secret lies for a prudent new owner of Centre Place South. The “total” centre place should be promoted as one sophisticated retail environment. There will always be a corner for sophistication in any population, and provided the total Centre Place retains that image, it has a future.

The suggestion that Kiwi are refurbishing Lynnmall in Auckland and could use the funds from the sale of Centre Place South to prop up that refurbishment doesn’t seem to ring true. Hamilton as an environment is a tough market. It has not been helped by the spillage of retail blood and the diversification of its retail offering to all parts of the city. The council can take the blame for allowing this to occur.

Despite that, the growth in the city – and the long leases – mean that the property up for sale should see interest from a variety of parties in NZ and overseas, and should help it maintain its offering to the sophisticated consumer. The challenge will be however as to how you sell half your centre and achieve the right result long term, a partnership of sorts looks like the only saleable future.

Certainly Kiwi are keeping a leg in both camps by adopting this sales process!

Property trends guide to be released

Issue 2 of the increasingly popular research publication Constructive Thinking is due out early next month. Analytics and data are expected to underpin each trend, which cover the most lucrative aspects of the New Zealand property sector. RCG has released overviews of 4 trends ahead of the report becoming public.

Read what they are and find out how to subscribe for free here:

Sharewatch | Trade Me

Trade Me is struggling to grow its “General Items” business, the auctions and buy-it-nows for which the site is best known. Revenue in the last half year was flat at $32.1 million, with EBITDA returns also flat at $24.5 million. Of course, that’s still a profit margin which most companies would be very happy with…

The second-hand auctions market was always going to mature, but what Trade Me is really trying to do is to capture a share of online retail – to become an online shopping mall rather than a flea market. The results over the last year or two suggest that they’re struggling to do that so far, and they’ll be competing with the likes of the best global companies in this field, including Amazon, Ebay and Alibaba.

On the other side, Trade Me continues to do very well with “classifieds” – Trade Me Motors, Jobs and Property – and revenue there has climbed from $38.6 to $47.8 million, with EBITDA returns up from $28.6 to $32.8 million. They’re also making some quite strategic acquisitions to improve their offering.

In the press

Local and international media highlights 18 Feb - 24 Feb 2015

Kirkcaldie & Stains flags October for possible capital return, mulls future of store
Kirckcaldie & Stains [NZX: KRK], the unprofitable Wellington department store, is waiting for a new chief executive and the final payment from the buyer of its Harbour City Centre before deciding whether to return the proceeds to shareholders. The retailer is considering a possible capital return, most likely in the form of an off-market share buyback, to return some of the proceeds from last year's sale of its iconic inner-city building in Wellington, chairman Falcon Clouston told shareholders at the annual meeting in Wellington yesterday. After paying off $23.5 million in bank debt, the sale has netted $16.8 million to date but Clouston said the board is still awaiting a final instalment of $4.75 million in October.
(Source: NBR) 

Marketing New Zealand properties to Asia and Australia
Expecting strong offshore interest in New Zealand's commercial and industrial property to continue this year, Bayleys will be resuming regular visits to major cities throughout South East Asia and to Australia as well as pursuing a number of overseas marketing initiatives. The first of these will be "Investment New Zealand: a Focus on New Zealand as a Property Destination" which will include a portfolio of properties likely to be of particular interest to South East Asian investors.
(Source: NZ Herald)

Majors lead way in Christchurch CBD retail homecoming
Retailers, encouraged by the likes of Hallenstein Glasson taking the plunge into the Christchurch CBD, are looking to follow suit, says Nick Doig, head of retail leasing at Colliers International in Christchurch. “We’re currently negotiating with several other major retailers new to New Zealand, who are expressing strong interest in the central city rebuild and the potential it provides to launch their brands here,” Doig said.
(Source: Retail News)

Big city K' Rd corner development site
A big Auckland city vacant commercial site with a 33 metre frontage onto busy Karangahape Rd (K' Rd) and a 36 metre frontage onto intersecting Gundry St is on the market for sale next month. The freehold corner property at 520-536 K'Rd and 2 Gundry St has a total land area of 1272 sq m and is about 100 metres from the major crossroads of Great North Rd, Ponsonby Rd and Newton Rd; and is just 600 metres from Queen St.
(source: NZ Herald)

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