Businesses face some hard decisions as we emerge into the post-lockdown world - including the toughest decision of all, says Greg Ninness

Businesses face some hard decisions as we emerge into the post-lockdown world - including the toughest decision of all, says Greg Ninness

The growing number of vacant buildings in towns and cities throughout the country will undoubtedly be the most visible indicator of our country’s economic health as we grapple with the economic after effects of the COVID-19 pandemic.

Statistics such as unemployment, GDP and retail spending may paint a fuller picture of our collective fortunes, but none of those has the immediate and graphic impact of an empty shop, office or factory sitting forlorn and unloved with a “for sale or lease” sign on it.

Although they are already a noticeable feature of our city streets, we are likely to start seeing more of them. Possibly a lot more.

As we emerge from the lockdown restrictions, businesses, apart from those that are in some way reliant on international travel, will start to get a better idea of what the future could hold for them in the coming months and years. For most, it won’t be going back to life as normal before the lockdown.

Economies around the world have been fundamentally affected by the pandemic and this country will not escape the effects of that. And Government assistance for businesses can only go so far and cannot last indefinitely. Eventually people running businesses will have to make some hard calls.

For some this will mean keeping their basic business model but slimming it down. Cutting costs where they can and trimming it down to a smaller and hopefully more efficient operation. For others it may mean a more significant change of direction, perhaps concentrating on a different segment of the market, or completely reorganising the way they operate. We are already hearing a lot about businesses both large and small making these types of decisions.

But others will have to make the hardest decision of all – to turn out the lights and walk out the door for the last time, as businesses that might have been marginal before the pandemic are no longer viable in its wake.

No one will bear that burden harder than owner-operators. For them, their business is not just a livelihood, it is their passion. They will have poured their hearts and souls into it and probably most of their financial resources.

Many will be left with nothing but heartbreak. And it’s not just the owners of businesses facing these sorts of decisions. The directors of many larger companies will be facing similarly tough calls.

And many companies must also decide whether to continue to support some of their customers with credit. That can also be a hard decision.

Customer-supplier relationships have often been built up over many years and been mutually beneficial for both parties. Pulling the plug on such long standing relationships won’t be an easy decision, especially when the supplier is aware that others may not be prepared to take their place, effectively shutting down their customer.

Unfortunately, business involves making hard decisions. Eventually, many of those decisions will start to manifest themselves as vacant floor space. We are seeing some of that already and we are likely to see a lot more, and that will cause a reset in rents and capital values.

But it will play out over months and years rather than weeks, because many of the rent reduction or rent deferral arrangements entered into between landlords and tenants were temporary arrangements.

The full extent of the market changes will only be seen as leases come up for renewal, and at that point, even if sitting tenants are supposedly gold plated entities such as government departments and they are happy to renew, the changes will fully reflect the market.

In the intensely competitive world of commercial real estate, this type of environment sorts the men from the boys, and of course, the women from the girls.

Advice on where to set rents, what sort of tenants to target and what incentives landlords facing vacancies should offer, as well as what is happening with prices,  will be in high demand. Leasing specialists who can match the needs of tenants who may be vacating space in search of something smaller or cheaper with a landlord who has space that meets those needs, will prove their worth.

Those that just want to put a “for lease” sign on a window and write an ad that says “ticks all the boxes” may not last long.

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71 Comments

13
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Just like Auckland back in the early 1990s. Watch the real estate offices close--especially in holiday home areas like Warkworth and Matakana. Keep an eye out for the "To Let" signs in the commerical building estates.

23
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Just like Auckland back in the early 1990s.

I think that's possibly a little optimistic. This has the potential to be much worse.

Let's hope so.
//

Hi Weld,

That's a very inappropriate, self-centred comment.

Spare a thought for the oppressed/unemployed and those living with disabilities - who are likely far worse off than you.....

They're the people who will bear the brunt of a slow-down in business activity.

TTP

31
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Oh....... the irony

Said the guy who called people names! Hypocrite much???

11
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Note to readers. "//" indicates sarcasm.

/s is the usual way to indicate sarcasm

The end of the beginning, perhaps?

do you mean we are going to see less cheesy looking guys in cheap ill-fitting suits with Hallenstein's ties , practicing their most sincere looks, beaming out from residential real estate signs and advertising hoardings ?

cheap suits?

God I sure hope so

Comment from an article yesterday re Michael Hill closing down some of his stores, one of them being downtown Tauranga:

"Tauranga, for example, has shifted quite significantly over the last couple of years. If you go down the main street of Tauranga, it is a ghost town at the moment.

12
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Are boomers and bogans not into jewellery?

Yes, they are, and they're often trying to sell it.
When they get offered 10% of that Insurance Valuation ( means nothing except higher premiums!) and $3,000 for that engagement ring they bought last year for $30,000 they get taken somewhat aback.
My advice? Take the $3,000 or be prepared to keep it forever.
(NB: Family member is a manufacturing jeweller)

If you want ‘jewellery’ that will keep its value, buy it with significant precious metal content. Even then it’s likely worth half the retail price. NZ Gold Merchants are apparently introducing solid gold jewellery that is not subject to GST and the price is based on the metal content. The ultimate store of value in jewellery is Stainless Steel Rolex Sports watches. Ring an authorised dealer to buy a Sub at the retail price and see how far you get. No supply.

That's why the jewellers will offer you 10% of what you paid - they'll base the price on scrap; store any stones and send the metal off to the refiners (say, Regal castings - https://www.regal.co.nz/refining.php ,and yes, they'll even incinerate your shop carpets for you to get whatever gold dust has accumulated over the years! ) and start again with just the basics.

Rolex watches are not rare though. The oddity is apple sell more watches in a month than all of Switzerland in a year

The youngest boomer is now 56. Apart from maybe rings for a second marriage I can’t imagine there’s much boomer demand for Michael Hill type jewellery. I’m a little bit older and recall my jewellery buying peak was late 30s / early 40s, all to mark family moments.

The youngest boomer is now 56 and is why I'm not a boomer for those who label me as one ;) its years and years before I can retire.

Certainly will be after this! Were you the one that got In late to the leverage addiction and Actually parked his nuts in Hamilton? Or was that ‘Buy low sell high’. ????

BLSH? Do you mean Due Diligence? Very quiet lately isn't he?

It will be interesting to see if in Auckland's waterfront will still retain overly priced goods stores that were blatantly aimed at Chinese cruise ship tourists. Including Tiffany, Dior, Gucci etc. They usually had a kiwi homeless guy sat outside looking bewildered at the line of Asian tourists queued up out side.

I was there last September and central Tauranga was a ghost town then, let alone in the wake of covid 19...

Re Tauranga: That's been going on for years. Foot traffic has been vanishing from Devonport Road and Grey St. IMHO three reasons, accessibility, lack of free parking, and stiff competition from the likes of Bethlehem which is on a main thoroughfare route, has free parking, Palmers gardenworld, Pats pies, cafes etc. The last time I was in Tauranga (2 years ago) it Bethlehem was booming with boomers.

Is a trend that's been happening for years as sales move online and bigbox retailers dominate. Small mid-range retail is dying. Can it reinvent itself?

The number of constructions that have began or are planned is unbelievable with apartments to supplement the company operating costs. Are university students and retirees that flush with cash. I walked it today and the only shop doing any real business was Spec Savers. With Michael Hill leaving Devonport Road will become more ghostly. Lets hope the council and business operators moving into the road, have a robust master plan for a revival.

17
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And our local real estate agent told us with low interest rates now is the time to buy before the market takes off again !! They would know. LoL

I think a lot of us misunderstand about the why there is low interest rates. low interest rates is used to encourage people to spend more and invest more and not to save money. Of course, we can invest into property as the real estate agents say, but is it a good investment at the moment? I don't think so. This article shows why.

check out history before you poo hoo the thought....a lot of people owe there present wealth to this thinking

Depends how you define wealth and alot.

House prices have risen, but unless you have more than one prior to this uplift you are no better off.

With this in mind, alot should be substituted for the few; at the expense of the rest; including the asset growth of the banks lending portfolio, which have been the main benefactor and cause of wider society ills.

One would think is payback time for these banksters, dont you think?

Agreed.

A lot of places are trying to sell acting they like they still exist. I went to Kingston (Queenstown) for lunch yesterday. Zero places open. One had a new had written sign for their hours and they were not honoring the hours. Another said "temporarily closed" and had a for sale sign on it. The online ad claims they are operational. Even the gas station shop was shut.

Two very mad little kids.

Was it just Covid? Or was there already a big problem building - DFA’s ghost town post from last year in Tauranga
https://youtu.be/NnW9uxGRyAY

Greg, you should, really get some friendly advice before you rush into print.
This broad brush article falls into the trap of lumping all commercial property under one umbrella.
The commercial property market is made of hundreds of sub branches, some which will suffer and some which will go from strength to strength.
Retail is high on the list of recession but are we talking about, Malls, strip shops, specialty shops, country stores, Govt outlets, work and live, and all the others?
Or are we talking about offices in the CBD's, in the suburbs, poor quality, middle quality, high quality, with or without parking, earthquake prone, and which grade A B C D or E? ; suburban offices, country offices, long leases, short leases (WALTS) . Then there is Industrial, what do they do, are they essential, partially essential, wholly essential, etc etc. where are they, in the heart of Penrose where this is 0% vacancy or in the country where there is a large vacancy factor. Or are they Cool Stores for which there is a huge demand and no supply. Please Greg, you write good stuff, but do not resort to padding. Respectfully BigDaddy

Landmark properties will always do well. ;-)

They did too from $5M to $500M in 7 years. Can't you take respectful criticism?. Why mention something that happened 30 plus years ago? Take a deep breath and say after me: " I must remain a professional" x 100 times.

20
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Oh dear. I guess my article won't be making it into your newslitter now...

Litter??

10
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Litter!!

Don't worry Greg. All those who are old enough remember the irreparable damage Landmark Corporation did to the finances of so many modest people who trusted in the ability of you know who. I have to laugh at the name he uses. BigFailure would be more appropriate.

It is very unfortunate that shareholders lost their money (and their financial security), however it is the investor's personal choice which public company shares they choose to invest their funds. As I understand, Olly was honest, and lost out financially in his personal wealth, so he had alignment with his shareholders. I have lost money in the sharemarket, and fully accept that was my personal choice to invest.

I believe we should applaud those with an entrepreneurial spirit and gumption who are willing to have a go. They provide important employment for those who are less willing to start their own business and content to be employees. How many Kiwis are employees of a business started by an entrepreneur? Most large businesses today were once a small business started by an entrepreneur. We should encourage those who wish to become entrepreneurs.

Inevitably some will succeed, and others will learn lessons. Some will learn the same lessons firsthand as those learned by previous generations. Olly learnt valuable lessons firsthand from his experience. He has shared his experiences in his books, so that many who choose to, can learn the same lessons (in a much less financially painful manner). I have learned many valuable lessons from his books, as I'm sure many other readers have.
Some of the current generation are repeating the same mistakes that Olly learned firsthand, and they have chosen to not vicariously learn the lessons that Olly has shared.

Olly Newland was about 38 years of age when the 1987 crash occurred. His crime was that he ignored the lessons learned by the previous generations, and learned those same lessons firsthand. He learned his lessons in a very high profile manner. Olly is now about 81 years of age, and now is much wiser, with his life experience.

Everyone makes mistakes in their life - some are more public than others. It is how people choose to recover that is important. Some people may choose to focus on the mistake, however I choose to focus on the fact that Olly tried and found out one way of how not to invest in commercial property, then he repaid his personal loans to his bankers, and applied those lessons to his next business venture.

As Thomas Edison, the inventor of the lightbulb, said "I have not failed, I just found 10,000 ways that don't work."

11
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Oh boom, roasted!

Indeed. Real life is shades of grey, not black and white......it's always more local, nuanced and Interesting.

Indeed. Real life is shades of grey, not black and white......it's always more local, nuanced and Interesting.

The only reason you would go into Hamiltons CBD would be if you are seeing a Lawyer,Accountant or another professional.
The CBD is dead while The Base at Te Rapa is chocka.

The only workers in Tauranga CBD are the spiders. Cob webs everywhere. It baffles me how those 1 million+ mortgages are getting paid back as nobody seems to have a job?

You don't need jobs. You just need Even Bigger Fools.

When I was there last September with my daughter for the AIMs tournament we were keen to get a coffee at 7pm on a Sunday. Starbucks had just closed and there were no other options.
Tauranga is a town with lots of the downsides of a city but few of the benefits.

Having coffee in Napier with lots of empty shops, been happening for years now but covid gave it a hurry up.

Yep similar thing happening here mostly in central Auckland so far.

Welly is closing up too!

Don't panic GR is rolling out a massive spend on Shovel ready jobs that will create thousands of jobs and boast the economy. Problem is he has only found a teaspoon in the garden shed.

Maybe the only shovel ready job is to shovel s#!t up a hill somewhere.

Ha ha.
A few days ago I asked interest if they could follow up on those projects...I will even make another donation if they do :)

14
up

Took a trip into Newmarket last week and was not at all surprised to see at least 50 premises for lease on Broadway and Nuffield street. We actually lost count! We then walked into the new Westfield shopping centre which was extremely quiet but the entire ground floor which was designed to house luxury brand stores is boarded up and these stores will not open. Apparently, the Newmarket site was redeveloped to enable it to compete with Sylvia Park which is a mere 8.3km away. Point 1: There are not enough people to economically support 2 big shopping centres not to mention the other large retail spaces around Auckland. Point 2: Large shopping centres destroy town centres. Big brands move to the shopping centre leaving retail space empty in the town centre. Then the charity shops and low end businesses move in as foot-flow disappears. This has been demonstrated the world over. Why has NZ made this same mistake? Are we expecting a different outcome to the rest of the world? Point 3: Article in The Herald yesterday telling us small retail businesses are struggling in the CBD especially on Queen Street. A hour later they are reporting on a new shopping centre that has opened at the bottom of Queen Street filled with High End brands and international restaurants. Retail has been slowly dying a death around the world for a few years now but somehow we think we are different. I don’t think so.

Dominion Road is heading that way too. Quite a few lease signs already.

Yes I live close to the new Westfield Newmarket Mall but one visit was enough for me. Too claustrophobic and bitsy. I shall still be going to St Lukes mall which is light and open and easy to find your way around.
Also, Queenstown is not everyone's cup-of-tea. Once was enough for me; I'm not one for mountains and snow. I prefer the native bush and the coast; that's why I would like there to be a railway line to the far north, bay of Islands, etc......I'm past using my car for long trips......too many idiot drivers on the roads. But I guess Shane Jones and NZF were all talk.....to be expected I suppose.

New stuff focused on high end international brands are not for average kiwis. They are for foreign cash, be it wealthy student or cruise ship.

Wealthy students? I don't think there are many wealthy students.

Plenty of the international students are

Chinese students buy for friends and family back home, to avoid the 50% luxury tax China whacks on stuff like that.

Commercial Bay was clearly aimed at cruise ships, hence the strong (and honourable) presence of kiwi brands.
Obviously with the absence of said ships it might struggle...

I'm not sure Nuffield St is a good example as Westfield was using those shops to house its tenants while they built 309 and upgraded 277. When 309 and 277 opened those businesses moved back to Westfield. However I did hear those businesses on Nuffield (mostly fahion) were losing a lot of money already as the footfall was dire compared to 277.

What a difference 3 months can make. Only 3 months ago, this comment was made:

by xxxx | 15th Mar 20, 3:46pm

This is total crap BS from you CN you just trying to cast a shadow on what has been good. Is it because of envy? Yes there are exceptions and some investors who have a bad experience. Apart from that comm property has been highly highly successful.

by CN | 16th Mar 20, 9:02am

Congratulations to you on having made successful investments in commercial property. Yes, commercial property prices have provided good returns in recent years. And that may have resulted in the formation of return expectations for the future by many commercial property investors. Future returns should not be based on looking in the rear view mirror but focusing on the windscreen and what is ahead. What has been good in the recent past, does not stay good into the future - that is the nature of business cycles.

The future looks like there will be economic headwinds in New Zealand and many are unable to see the economic headwinds coming . Economic headwinds typically result in business casualties, many of which who are tenants in commercial real estate.

There are some sectors of the economy where the businesses are already on life support as they have had a significant fall in revenues and are now bleeding cash. The signs are there for those tuned into it.

Some prices paid for commercial real estate recently have simply been too high.

No envy, just economic reality.

I find the envy call quite bizarre. Do they teach that at the property investment seminars?

If someone can see through the scam, try to make them quiet before the scare the herd. Label them envious of you, hoping they will become self conscious and be quiet so we can go back to spruiking up market prices for rents and capital gains.

eCommerce, click-and-collect and same-day deliveries etc. have been around for years in some overseas markets. NZ is catching up finally, though it was directly contributed by the pandemic.

Decades, actually. Countdown/Woolies have have online presence since 1998, and I can recall online ordering via one of the office supply wholesalers via modem and green-screen in the early 90's......Nothing new under the sun....

Dreamtime and clamouring crowds
Some years ago while living in Melbourne received a (Sunday) call from a client at Chadstone Shopping Centre for on-site technical engineering assistance. He would be available at 8:00 am Monday morning. Turned up at the appointed time. The big surprise were the hordes waiting around for the place to open at 9:00 am. Asked what the heck was happening, he explained the wider area was largely rental and a lot of unemployed people. They arrived early on most mornings out of loneliness and need for companionship. The worst time was after a weekend.

Chadstone Shopping Centre is the biggest shopping centre in Australia and claims to be the biggest in the Southern Hemisphere.
https://en.wikipedia.org/wiki/Chadstone_Shopping_Centre

Yes, challenging times are clearly upon us. Regarding Tauranga and its abysmal main street; being a cluster of diffused retail villages these days, Tga CBD retail has hollowed itself out and all the retailers that were on the Main St have moved out to the newer developments across the wider 'metropolitan' area. I suspect the property owners of the vacant space are only too happy to shutter their properties until the inevitable rezoning of all that area allows for multistory developments akin to those across the harbour, to go up and up...

Blimey! Poor ol' Tauranga is copping it. Its down town city centre is officially a dead town & as noted above, has been heading this way for quite a while. The Mainstreet managers are hopeless & working in with a dysfunctional city council (both politically & bureaucratically) meant it had little-to-no chance of surviving. The local leadership are embarrassing to listen to & if you combine that with the greedy landlords club, bingo - Deadtown (not Downtown) Tauranga.