Bluehaven Commercial Limited (Submitter # 584)
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BEFORE INDEPENDENT HEARINGS COMMISSIONERS APPOINTED BY THE NEW PLYMOUTH DISTRICT COUNCIL IN THE MATTER OF the Resource Management Act 1991 (‘the Act’) AND IN THE MATTER of the Proposed New Plymouth District Plan (Strategic Direction Sections) SUBMITTER Bluehaven Commercial Limited (submitter # 584) STATEMENT OF SUPPLEMENTARY ECONOMIC & PROPERTY MARKET EVIDENCE OF ADAM JEFFREY THOMPSON 16 July 2021 INTRODUCTION 1. My name is Adam Jeffrey Thompson. 2. For the past 19 years I have provided consulting services in the fields of urban economics, property market analysis and property development advisory. For the past 16 years I have owned and managed two consulting firms that have provided services in these fields. I am presently the director of Urban Economics Limited. 3. I have a Bachelor of Resource Studies from Lincoln University (1998), a Master of Planning from Auckland University (2000) and a Dissertation in Urban Economics from the London School of Economics (2014). I have studied urban economics at Auckland University and environmental economics at Lincoln University. 4. I have undertaken over 800 economic and property market assessments for a range of private and public sector clients. EXPERT WITNESS CODE OF CONDUCT 5. I confirm that I have read, and agree to comply with, the Environment Court’s Code of Conduct for Expert Witnesses (Environment Court of New Zealand Practice Note 2014). This evidence I am presenting is within my area of my expertise, except where I state that I am relying on the evidence of another person. To the best of my knowledge I have not omitted to consider any material facts known to me that might alter or detract from the opinions I express. SCOPE OF SUPPLEMENTARY EVIDENCE 6. This statement of supplementary evidence relates to the Strategic Direction – Urban Form and Development chapter. 7. My supplementary evidence covers the following: a) Outline of the function and performance of CBDs across NZ. b) Evaluation of the New Plymouth CBD retail market, including interviews with real estate agents. c) Consideration of residential growth around centres. CBD PERFORMANCE ACROSS NZ 2000-2020 8. The following tables and figures show the employment by sector for a sample of CBDs across NZ. Employment data is derived from Statistics NZ. Following this, an analysis of the ‘value added’ for each across the CBDs 2 sector is provided. This provides an insight into the related contribution of each sector to the performance of each CBD. 3 9. Auckland CBD Employment 2000-2020 A: Botany Town Centre B: Sylvia Park C: Silverdale Shopping Centre D: Northwest Shopping Centre E: Westgate Lifestyle F: Commercial Bay, Ormiston Town Centre 4 10. Wellington CBD Employment 2000-2020 5 11. Christchurch CBD Employment 2000-2020 A: Tower Junction, Eastgate B: Rolleston Square C: The Tannery D: The Crossing 6 12. Hamilton CBD Employment 2000-2020 A: The Base first LFR store opens, B: Centre Place (CBD) redevelops/extends 7 13. Tauranga CBD Employment 2000-2020 A: Fraser Cove B: Bethlehem Town Centre C: Gate Pa D: Tauranga Crossing 8 14. New Plymouth CBD Employment 2000-2020 A: The Valley 9 15. Palmerston North CBD Employment 2000-2020 10 16. Dunedin CBD Employment 2000-2020 11 17. Whangarei CBD Employment 2000-2020 12 18. The foregoing tables and figures provide an understanding of CBD employment composition and trends over the past 20 years in New Zealand. The most notable trends are: • All CBDs have experienced ongoing growth, and this is due to the increasing regional populations in these cities/towns. • The only exception is the 2008 global financial crisis (GFC) which resulted in all CBDs experiencing a decline in employment for a short period, in the order of 2-6 years, and thereafter returning to ongoing growth. • Retail is a small proportion of total employment, accounting for 10- 30% of all employment across the CBDs (as shown in the following figure). Other sectors, notably office and medical and personal care (i.e. hospital and specialised medical services) are the main sectors in CBDs. 19. Retail Proportion of Total Employment in CBDs 13 20. The following figures shows the CBD employment as a proportion of regional employment. This shows CBDs have a relatively consistent proportion of regional employment over time, mostly in the 10-25% range. New Plymouth is at the upper end of the range, at 20-25%. 21. CBD Proportion of Total Regional Employment 2000-2020 22. The following table provides an assessment of the ‘value added’ contribution of each sector to a CBDs total economic output. This accounts for some sectors having higher output than others and is useful in terms of understanding the main functions of CBDs. The main points to note are: • The majority of value added in all CBDs is from office employment which ranges from 59% - 87%, with most CBDs with between 70% - 80% of value added coming from this sector. • Value added per employee was highest in the Office sector, followed by the Recreation and Community & Medical and Personal Care sectors. Education was the fourth highest value added per employee sector in all CBDs bar Hamilton. • Retail is a relatively small part of CBD value added economic output, (4- 18%). 14 23. Value Added by Sector for NZ CBDs 2020 15 NEW PLYMOUTH CBD RETAIL VACANCY & MARKET PERFORMANCE 24. Mr Heath has estimated the CBD has 41 stores that are vacant or under construction based on a survey (12%). I have estimated 23 stores are vacant based on current market listings (7%). The stores that are under construction, in Mr Heath’s estimate, may already be leased, or may have not yet been released to the market (i.e. future pipeline supply). It would be useful to have Mr Heath’s estimate of vacant stores separated from his estimate of under construction stores. 25. In addition to a recent visit to New Plymouth CBD (several years ago), I have had discussions with three local real estate agents to obtain an insight into the current market. In summary, the agent interviews revealed: Agent 1: • Rents in the CBD for retail have remained relatively stable over the past few years. • Core CBD rents can range from $150/m2-$300/m2. • Peripheral CBD can achieve rents of $150/m2-$200m2. • Estimates 30-40 retail vacancies in CBD. • The agent attributes Covid-19 as a partial contributor to the increasing retail vacancy. Agent 2: • Retail rents for core CBD can achieve $300/m2. • Rents have stayed relatively stable over the past few years. • Estimates 20-30 retail vacancies in CBD. • Mostly pocket of smaller stores of 80-300m2 in Devon Street. • Many vacancies are in older buildings (early 1900’s) which don’t meet the quality and seismic needs of major brand retailers. • Increasing vacancy to a range of reasons with Covid-19 a contributor. • Strong demand for large format retail, 800m2 and above. • Difficult to find development sites for large format retail in the CBD. • Many branded speciality tenants are not currently in New Plymouth and this is due to the quality of the buildings available. • Many New Plymouth residents are shopping in Wellington, Auckland and Sydney, particularly for upmarket clothes. 16 Agent 3: • Core CBD Rents of $250/m2. • Relatively large difference in rental rates between core and periphery. • Rental rates have followed a relatively flat trend over past few years. • Estimates 20-40 retail vacancies in CBD. These are mainly lower quality or smaller spaces. • Covid-19 has had an impact on the retail market, especially in the small food and beverage industry with cafes for example finding it difficult. 26. In summary the agents estimate current retail vacancies ranging from 20 to 40 stores. The main reasons the agents note for the vacancies are the increasing shift towards large format retail and the quality and seismic issues of some of the older smaller stores. These are common challenges faced by CBDs and town centres across NZ over the past 20 years. 27. Mr Heath’s recommended policy approach to this problem is summarised in the following excerpt from his evidence: “Within New Plymouth District centre retail supply is broadly equivalent to current sustainable levels of retail GFA. However, the issue to address in New Plymouth is quality over quantity of retail, and policy settings should focus on improving the former over the life of the PDP rather than delivering that latter. Growth is more appropriately channelled into improving the health, amenity, and vitality of existing retail centres GFA with general improvement in the quality, offering and experience of existing destination being the focus. The material level of existing retail vacancy would be supported be such as policy setting” 28. Mr Heath’s recommended approach is therefore to restrict competition to support retail tenants within existing CBD stores. The market result in my experience, from restrictive retail policies, is that owners of poor-quality CBD buildings will not be encouraged to renew their properties, competition is suppressed, and retailers will continue to seek other options or not come to New Plymouth, further exacerbating the quality issue that Mr Heath acknowledges. 29. In my opinion the data shows that the New Plymouth CBD, and other CBDs, have withstood the competitive impact from new shopping centres, the emergence of large format retail, and the more recent emergence of online shopping. However, high retail vacancy, e.g. over 10%, can have negative 17 externalities, so needs to be carefully considered. I would note here that vacancy rates are not in themselves determinative, as there may be other practical issues such building age, seismic, parking, store dimensions or profile, that are causing the vacancy rates, rather than market supply and demand.