Bluehaven Commercial Limited (Submitter # 584)

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

sector is provided. This provides an insight into the related contribution of each sector to the performance of each CBD.

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

10. Wellington CBD Employment 2000-2020

11. Christchurch CBD Employment 2000-2020

A: Tower Junction, Eastgate B: Rolleston Square C: The Tannery D: The Crossing

12. Hamilton CBD Employment 2000-2020

A: The Base first LFR store opens, B: Centre Place (CBD) redevelops/extends

13. Tauranga CBD Employment 2000-2020

A: Fraser Cove B: Bethlehem Town Centre C: Gate Pa D: Tauranga Crossing

14. New Plymouth CBD Employment 2000-2020

A: The Valley

15. Palmerston North CBD Employment 2000-2020

16. Dunedin CBD Employment 2000-2020

17. Whangarei CBD Employment 2000-2020

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

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%).

23. Value Added by Sector for NZ CBDs 2020

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.

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. The Council has not evaluated the extent to which vacancies are being caused by these other issues.

30. Specialty retail in the New Plymouth CBD will face ongoing competition from LFR, online retail and the consented shopping centre, all of which cannot be avoided with regulation. This suggests Mr Heath’s recommended policy to restrict competition would be ineffective.

31. Mr Heath fails to acknowledge that New Plymouth and Taranaki has grown to a population size where some specialty tenants and LFR tenants require a second store in New Plymouth to service their customers more efficiently and in a centre that is closest to where growth is occurring. As outlined by Mr York and Mr Perring at the hearing the commercial and retail centre has been master planned based on extensive market research to provide for the demand and feedback from retailers whom they have relationships with from developing other centres in New Zealand.

32. The two store or more approach of retailers is evident throughout New Zealand and in New Plymouth. A number of retail brands already have two or more stores in New Plymouth or Taranaki, commonly in the CBD and in Waiwhakaiho.

33. The retailers commonly want to be in a sub-regional centre location close to existing population and planned growth. The sub-regional centre proposed by Bluehaven Commercial Limited in my experience can provide retailers an opportunity to have a second store in New Plymouth or provide another option for new retailers to enter New Plymouth.

34. Mr Heath’s approach will leave retailers few if any options to have a second store in New Plymouth and to grow employment and the economic base of New Plymouth and perpetuate leakage as retail customers have to travel outside the region to shop at retailers who do not exist in New Plymouth.

35. In my opinion, New Plymouth District Council would be better placed to address any potential externalities related to retail vacancy in the CBD with proactive measures that aim to support the CBD and store refurbishment and tenanting. For example, this may include investment in public spaces, parking, financial support for store refurbishment and earthquake strengthening. While this may be a more complex and costly approach for Council than restricting competition elsewhere, it is in my opinion the only approach that would potentially address the issues raised by Mr Heath.

LFR CAPACITY

36. In paragraphs 6.6 and 6.7 of his evidence, Mr Heath states he does not agree with my assessment of capacity for LFR within the CBD. Mr Heath has not provided evidence that there are feasible sites within the CBD to meet the future demand for LFR stores. It is a requirement under the NPS-UD for Councils to undertake this assessment, and to identify business land that is “suitable”. This assessment should also be undertaken in my opinion to meet the requirements of s32 and s31(1)(aa) of the RMA.

37. In his 2021 report Mr Heath concludes:

“There is currently adequate retail provision within New Plymouth District at present based on current sustainable demand levels, and the market is able to sustain additional retail GFA in the future as market growth occurs” (page 10).

38. In order to reach this conclusion Mr Heath needs to identify the specific sites that are suitable for LFR stores, in terms of location, size and price (viability). This is because LFR stores have well documented challenges in finding suitable sites.

39. In addition, Mr Heath fails to acknowledge or explain why a competent and successful development entity such as Bluehaven Commercial Limited with personnel who have developed successful centres in New Zealand and are developing other centres in New Zealand, would purchase and consent the commercial and retail centre, when, as Mr Heath says, “there is currently adequate retail provision in New Plymouth”. My understanding is that Bluehaven Commercial Limited has undertaken detailed market analysis that identifies demand for the proposed centre. I have also assessed the catchment population to be of a sufficient size to support a sub-regional centre, such as a shopping mall or lifestyle centre.

STRATEGIC DIRECTIONS

40. In paragraph 6.9 of his evidence, Mr Heath states that I may be conflating LFR needs with the provision of a suitable zone for the Bluehaven Commercial Limited consented centre are 662 Devon Road, and that this matter should be deferred to the business zone hearings. I do not agree with Mr Heath. UFD-17 identifies specific centres that are intended to make up the centre hierarchy, and this level of specificity at the strategic direction

level may preclude further consideration of business zoning at the business zone hearing, or at least frame these decisions before the evidence is available. In my opinion, UFD-16 and UFD-18 are sufficient to address the efficient provision of business centres, and UFD-17 is overly prescriptive and counterproductive, because it does not include LFR centres, which are an important part of the retail market (80-90% of all new retail floorspace over the past several decades has been LFR) and it does not include the consented Bluehaven Commercial Limited sub-regional centre, which is an important part of the District’s future retail market.

POPULATION GROWTH

41. The New Plymouth District projects New Plymouth to grow at a rate of 550 people per annum from 2020-2030. From 2030-2040, the growth rate is projected to decrease to 440 people per annum.

42. Actual growth from 2018-2020 was 1,400 people per annum, approximately 2.5 times greater than the projected growth rate, and there has been strong growth for 5-7 years.

43. The largest driver of this growth is migration into New Plymouth from Auckland, with a total of 1,030 people per annum over the past two years. 44. Given there is a nationwide trend of strong growth in the regions, as a result of the exodus from Auckland, it is my expectation that New Plymouth will continue to experience strong growth, well above the Statistics NZ and New Plymouth District projections. This will increase demand for retail space.

RESIDENTIAL ACTIVITY AROUND CENTRES

45. In section 2.5 of his evidence, Mr Osborne outlines the economic benefits of providing greater residential densities, and a more compact urban form, in and around centres. Mr Osborne identifies these to include improved infrastructure efficiencies, improved centre vibrancy and vitality, lower housing prices, greater employment, improved housing choice and improved land efficiencies.

46. I support increasing the market opportunity for more intensive housing around centres, as this increases access for pedestrians and can allow any unutilised infrastructure capacity (roads and services) to be used efficiently.

47. In paragraph 2.6 and 2.7 Mr Osborne states the “An approach of providing ever increasing additional land areas to meet future residential demand results in costs and inefficiencies that will impact on the community’s

economic and overall well-being…While greenfield residential development is often easier and more profitable than redevelopment or infill, this does not mean that greenfield residential development will result in improved economic well-being for the community. While benefitting individual landowners, greenfield development is more likely to come at a cost to the community”.

48. Mr Osborne’s view that greenfield development will come at a cost to the community is fundamentally incorrect. Upgrading infrastructure in existing urban areas can cost many times that of building new infrastructure in greenfield areas, and infill can only be considered efficient, without a detailed assessment of these relative infrastructure costs, if it uses unutilised capacity. Greenfield development provides the opportunity to provide lower cost and affordable housing, particularly affordable 3-4 bedroom family houses. This is because a developer is able to purchase raw development land at a much lower (rural) price, when compared to an infill site, which for example a quarter acre with an existing house. An infill development site will generally have a raw cost $100,000 - $200,000 per dwelling, however by comparison a greenfield development site will generally have a raw cost of $10,000 - $30,000 per dwelling. The higher infill development costs are passed on to the buyers of the infill dwellings, and this is the fundamental reason why greenfield sites are able to provide more affordable housing than infill sites. In my opinion, there is a need to have at least 5-10 notable greenfield developments to provide a competitive greenfield housing market, and infill housing should also be enabled, particularly around centers. I understand from discussions with Mr Brophy that the Smart Road growth cell is suitably located greenfield area, and bringing this forward (noting it is currently set down in the PDP for a 10-30 year growth time horizon) should be considered in regard to ensuring an efficient housing market.

49. It is also worth noting that large masterplanned developments are able to provide a range of more intensive housing, and it is commonplace for large developments to include well designed terraced houses and apartments. They therefore also contribute to a compact city and achieve some of the same benefits as infill in this regard.

UFD-13 INDUSTRIAL VERSUS BUSINESS REFERENCE

50. UFD-13 states the District will meet “…the community's short, medium and long-term housing and industrial needs”. This overlooks the need to meet the commercial needs of the District which appears to be erroneous. In my opinion UFD should be reworded to provide for the Districts “housing and business needs”. I note that this is a requirement of the NPS-UD.

SHOPPING CENTRE DEFINITION

51. The NZ Council of Shopping Centres defines a sub-regional centre to mean the following:

‘A medium sized shopping centre typically incorporating at least one full line discount department store, a major supermarket and around 40 or more specialty shops. Total gross lettable retail floorspace typically ranges between 10,000 and 30,000 square metres’

52. The consented Bluehaven Commercial Limited centre falls broadly into this category. I would however expect it to have a dual function, including providing access to day-to-day retail goods and services for nearby residents (i.e. a convenience function), and a wider sub-regional, and to an extent regional function, as a comparison shopping centre. With regard to the later, this will retain expenditure currently leaving the district, which is estimated to be 15% in the 2021 Property Economics report. This figure is likely to be higher for the region, as this figure includes inflow from Stratford for example.

Dated this 16th Day of June 2021.

Adam Jeffery Thomson