Industrial and retail construction projects dominate Christchurch new development pipeline

New research from CBRE shows that industrial property projects account for nearly half of all commercial property developments underway or about to start in Christchurch.

Industrial projects account for 48% of the ‘active pipeline’ of new commercial property developments (where construction has either begun or is expected to start shortly) in terms of floor space, totalling about 68,000sqm. 

Retail developments make up 36% (around 51,000sqm), with office buildings accounting for the remaining 16%. 

Jorge Chang Urrea, Research Manager at CBRE, said most of the new supply in the industrial sector is expected to be completed in 2025, with the bulk of new development in Hornby.

“Hornby is the hotspot for new industrial developments, accounting for the vast majority of new facilities completing over the coming year. There are 10 new industrial facilities underway in Hornby totalling around 34,000 square metres,” he said.

In the Christchurch industrial market as a whole, a trend towards increasing vacancy is resulting in a more functional market for occupiers, especially at the prime end of the quality range, said Hamish Clarke, Industrial & Logistics Director at CBRE Christchurch.

“Demand for industrial space in Christchurch has become more subdued, with some occupiers subleasing part of their premises and large companies downsizing. As a result, rents on new industrial builds have stabilised and there are more opportunities for occupiers.”

While the vacancy rate in the Christchurch industrial market has increased, it is still very low by historical comparisons. Vacancy in Christchurch industrial property is now 1.4% as at June 2024, up from 0.6% in the second half of 2023. 

The tenant market is also showing less demand for bigger spaces. “Several tenants have downsized their footprints because of diminished customer demand and consolidation. Vacant space emerging in the market may become more noticeable over the coming year as some occupiers relocate to new purpose-built facilities,” he said.

The industrial market is expected to ride out the current challenges, with an improving outlook on the horizon triggered by interest rate cuts prompting increased demand.

In the retail sector, large format developments are the most active part of the market, reflecting the buoyancy of this sub-sector. Five out of the six retail projects in the pipeline in Christchurch are large format buildings. 

Most new retail developments are for major standalone tenants, such as Mitre 10 and PAK'nSAVE which both have new stores under construction. A new Harvey Norman store in Woodend is also nearing completion.

Ashley Whitting, national Head of Large Format Retail at CBRE, said tenant demand is strong and vacancy rates are low, despite the current subdued economic climate and higher living costs.

“Good quality large format centres with strong anchor tenants are performing exceptionally well. There are many tenants looking for space, and sales figures for large format retailers have been robust and consistent.”

Tenants are seeking quality centres with great parking and a good tenant mix, she said.

“They want that strong co-location draw for cross-shopping that comes with being in a centre with a strong mix of retailers. Customers will stay longer in a centre and visit multiple stores, especially in centres with ease of access and good parking.”

Christchurch's ample flat land allows for the design of centres with large, single-level car parks adjacent to stores, enhancing the shopping experience, she added. 

In the CBD, retail and office property development is active near the upcoming One NZ Stadium around Cashel and High streets. Low vacancy in the core CBD, combined with the expected boost to this part of the CBD when the new stadium opens, is stimulating development activity in this area.

Higher CBD retail rents are making construction costs more viable, said Whitting. 

“Developers are now willing to proceed with new projects if they have tenant pre-commitment. These trends are slowly increasing the development activity towards the eastern end of the CBD towards the stadium, where good rental rates are being achieved for new stores.”

Prime Christchurch CBD retail has experienced strong growth due to a lack of available space on Cashel Mall. Face rents increased by an impressive 14% in the second quarter of 2024, compared to the first quarter, according to CBRE Research.