What does this mean for your commercial investment property in provincial CBDs?
For property investors, pedestrian counts reveal more than just how many feet are on the pavement outside their building.
Observing trends through time can provide insight into changing consumer behaviour, reveal investment opportunities and potential challenges for those looking to purchase in the CBD
Provincial CBDs throughout New Zealand have generally observed a pattern of decreased foot traffic over the past decade. In Tauranga, for example, the 2019 pedestrian count shows a 15% decline from 2017, which was 11% lower than the previous count in 2015.
Typically, the amount of pedestrian traffic reflects the amount of potential trade for businesses, and the exposure they'll receive.
As a commercial property owner, if your tenants’ profits are flatlining or declining due to decreased foot traffic, your investment is likely decreasing in value too.
But these statistics don’t signal the end of the provincial CBD
Rather than steering clear and missing opportunities completely, Paul Higson of TelferYoung Tauranga believes that investors should instead use this information to make forward-thinking decisions about which properties will be in demand – and how to make their spaces more appealing to retailers.
Find out how you can plan for the future when investing in the city, and how to get the best value for your investment.
Why are pedestrian numbers falling?
To address the issue of falling pedestrian counts, you have to understand what’s driving the trend… but it’s not exactly simple.
Developments over the past decade in how we work, live, travel, and shop have irrevocably changed our behaviour. These developments are diverse, ranging from online shopping to the creation of mega-malls outside city centres.
While no one factor alone is responsible for falling pedestrian counts, there are several interrelated reasons behind the trend.
Some of the more prominent reasons are:
- Decrease in people living in the CBD. As city centres are redeveloped for offices and businesses, dwelling spaces reduce and become expensive. People tend to shop wherever is closest - if more people lived in the CBD, those people would shop there.
- Changing shopper behaviour. The internet has led to a change in consumer behaviour, as shoppers now research products and stores online, and only visit the CBD to make a purchase. This “mission shopping” decreases browse time.
- Online shopping. As cheaper deals are available online, and stores can’t offer a point of difference, more shoppers are turning to the internet for their purchases.
- Development of malls outside the city centre. Privately owned shopping malls attract shoppers away from the CBD with free parking, chain and outlet stores, and anchor destination businesses (such as food courts and cinemas).
A myriad of reasons contribute to reduced pedestrian counts, which — if not proactively checked — can lead to disappointment for commercial property owners.
What can commercial property investors do?
Over the past decade in Tauranga, rents on commercial properties in the CBD have barely risen. Compare this to other retail areas in the city, which have seen 15-20% growth in rental rates, and it’s clear to see the CBD is missing out on substantial growth.
At first glance, investors may be put off by this dispiriting prospect, but Paul Higson isn’t discouraged:
“With CBD assets, you have to be more proactive as an owner. It’s not like a passive investment in a mall or industrial property. In the CBD you have to be willing to make changes, to grow.” - Paul Higson, TelferYoung Tauranga
His primary recommendation for commercial property owners is to think about how a given property will be in demand and what potential it carries for the future. The demands of 20-30 years ago are no longer relevant, and owners must be future-forward with plans if they are hoping to see growth.
Ways to design spaces with modern leaseholders in mind:
- Top to bottom. Creating residential housing above ground-floor commercial space can help bring residents back into the CBD, while attracting pedestrians to the street front.
- Ground-floor options. Your ground-floor retailers may not be the traditional high street set anymore, it could be outlets for online retailers, or experiential destinations (e.g. restaurants or cafes).
- Be a destination, not a window shop. Traditionally, the first 5-10m of depth were top priority for the ground-floor, but with changing shopper behaviour, retailers are relying more on becoming a destination, and less on trying to persuade passers-by to stop.
- Provide an experience. To compete with online shopping, retailers are needing to provide experiences in-store — for example live music, or free drinks. Premises with wider space at the rear, or views from the back of the business offer greater potential for this.
Observe the burgeoning trends for central city spaces worldwide — like creating green spaces that pedestrians want to be in — and evaluate whether these are achievable or realistic for your space.
How TelferYoung can help
Experienced valuers, like our team at TelferYoung, have their finger on the pulse of the commercial investment industry to know what businesses are performing, what may be a good use of a particular space, and how rents are tracking in a certain area.
We can advise commercial property owners on which sectors — and what sub-sectors within those — are performing the best
If offices are performing well in the CBD, we’ll help you to break down the benefits between investing in a big or small, modern A, B or C grade office space.
We’ll guide you through your options for converting ground floor space into different retail or experience premises
Some ground-floor spaces may be appropriate to adapt differently in the future, to capitalise on growing trends and demands.
We work with you to find a commercial investment property that’s suited to your needs and capabilities, based on historic and current rental trends
You may be excited about investing in a property, without realising that rents aren’t growing or changing — unless you do something about it.
Higson likens the CBD to a giant cruise ship: the hulking size giving it momentum in a single direction, and it takes quite some effort to turn, but when it does turn it powers ahead wherever you steer it.
His is an optimistic view, open to the exciting future that developments in the CBD can bring.