While falling interest rates have brought relief to mortgage holders and those seeking lower-cost financing options, the flipside is term deposit rates have also fallen.
The drop in returns from term deposits combined with current market pricing is driving those with capital to look at other investment opportunities and they are rapidly moving to large format retail offerings.
These properties, such as supermarkets, large-scale hardware stores, furniture outlets and discount chains are often essential service businesses that feature long-term leases with a strong tenant covenant and are generally a low-maintenance asset.
Despite retail trading conditions remaining challenging against the backdrop of a tough economic climate across New Zealand, these tenants look long term and many well-located stores have continued to perform strongly.
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Blair Peterken and Peter Herdson from the Colliers Capital Markets team have transacted a collection of these properties across the past 12 to 24 months.
Some market-leading deals include the recent $43 million sale of Bunnings in New Lynn in West Auckland, Woolworths Westgate for $20.16 million, and the FreshChoice supermarket in Ōmokoroa in Bay of Plenty, alongside Pak'n Save in New Plymouth and Woolworths in Invercargill.
The combined sale of the Pak'n Save and Woolworths late last year for $54.5 million allowed vendors Investore Property to then acquire Bunnings Westgate for $51 million in a combined deal that totalled $105.5 million.
"We have seen interest in large format retail opportunities from buyers across the board but mainly from high-net-worth private buyers and listed entities who are looking for better returns as term deposit rates become less appealing," Peterken says.
"These assets are prime passive investments and often require low levels of management intensity. They are nearly always on large sites with strong underlying land value and flexible zoning.
"The lure of these properties is bringing new investors into the market and we anticipate cap rates will start compressing with values to rise over the coming year as enquiry levels strengthen.
"While there is pent-up demand for Auckland assets, other main centres in New Zealand are drawing interest, as evidenced by the sale of 262-266 Cameron Road in Tauranga that is leased to Noel Leeming, Chemist Warehouse, and Animates and sold for $18.66 million at a 6.3 per cent yield."
The Woolworths in St Johns in Auckland recently went unconditional to a private investor for $22.995m who was attracted to its elevated position and accessibility on a prime corner location, while the property is safeguarded by a zoning that allows for development opportunities in the future.
The underlying land value was a major drawcard for this supermarket given its strategic position and scale, meaning there is development potential that could be explored by the current or future owner.
Peterken and Herdson are currently marketing for sale Buildings 2 and 3 within the Five Mile shopping complex in Queenstown, alongside colleagues Mark Simpson and Rory O'Donnell.
Located only two minutes from Queenstown Airport at 28-30 Grant Road, Frankton, the property is anchored by nationally renowned tenants Woolworths, Briscoes, and Rebel Sport and is supported by ancillary retail and service businesses. The weighted average lease term is approximately 7.09 years.
Sitting on 8,645sq m of land, there is 9,577sq m of net lettable area and the estimated net passing income from the property as of June 2025 was $2.718 million per annum.
"The Five Mile retail precinct has developed rapidly during the past 10 years and benefits from the surrounding residential developments with more in the pipeline.
"This property exemplifies the type of large format retail asset that has caught the attention of buyers," Herdson says.
- Supplied by Colliers
