Ikea's big New Zealand announcement: what will it mean for the local commercial property market?

Since Ikea first announced its investment in New Zealand in January 2019, countless fans have eagerly awaited its arrival. Speculation about the first store's location was rife. Based on Ikea's approach in other cities worldwide, most people expected it to be beside Costco in Westgate's retail precinct in west Auckland, or on an undeveloped commercial site somewhere in south Auckland...

The answer was finally revealed on 2 December 2021: New Zealand's first full-sized Ikea store is planned for Sylvia Park shopping centre, beside Auckland's State Highway 1, on a site of around 3.5 hectares. Sylvia Park has reportedly undergone several expansions since opening in 2007. It now has more than 200 shops, 5000 parking spaces and 106,427 square metres of total retail floor area. Ikea's arrival will extend the shopping centre as far east as possible. First, however, Ikea needs Overseas Investment Office approval to buy the land, with the purchase conditional on obtaining resource consent from Auckland Council.

On the afternoon Ikea New Zealand made its announcement, Clive Mackenzie, chief executive of Kiwi Property Group, a land developer with extensive New Zealand commercial property holdings, revealed some details of the Ikea deal to the New Zealand Herald.

“The commercial site we sold to Ikea covers 3.2 hectares. It currently contains some light industrial buildings with tenants,” Mackenzie said. The Ikea site faces the rear of Farmers, beside The Warehouse and just across the railway tracks. The deal will significantly advance the south-eastward expansion of New Zealand's largest shopping centre, which spans 35 hectares, including Sylvia Park Lifestyle Centre, separate from the main mall. Sylvia Park currently has 5000 parking spaces, but Ikea will need to build hundreds more for its shoppers to meet demand. Its store could have around 35,000 square metres, or 3 hectares, of indoor retail floor area.

Mackenzie added that Ikea customers would enter the new store from Carbine Road. Additional roadworks would be required as part of the resource consent process, although a public transport interchange and railway station were already there. “This is part of Sylvia Park's development into a world-leading mixed-use commercial precinct. Ikea's arrival cements the site's position as a fantastic retail destination for all of New Zealand.” Kiwi Property Group also plans to build a new shopping centre on one side of Carbine Rd near Ikea. Kiwi Property labels it “LFR” in its plans, standing for large-format retail.

“In addition, Kiwi Property will build 6432 square metres of large-format retail space beside the Ikea site, if Ikea chooses to build its store. It adjoins the site we have already sold to Ikea. It will be similar to what we own at Westgate shopping centre, across the road from Sylvia Park Lifestyle Centre,” Mackenzie said.

Kiwi Property's rental apartments and a second office building on Te Kehu Way are also under construction. Customers travelling by train will use the pedestrian bridge over the tracks to reach Ikea, but there are no plans to expand the railway station.

As one of the largest commercial property deals in Auckland and New Zealand in 2021, YIJU believes its underlying commercial value will be immeasurable. Ikea's arrival will have a major and far-reaching impact on commercial property in the precinct and across central and south Auckland. To explore this, YIJU New Zealand promptly contacted experienced local commercial property adviser Mille Liang for an in-depth assessment.

Q: What effect do you think Ikea's arrival will have on the area's commercial leasing market?

Millie Liang: I think Ikea's arrival will act as a magnet for spending. Foot traffic is an important measure when assessing a commercial shop's rental value. As Kiwi Property's CEO said, this makes it possible for “Sylvia Park to become a world-leading mixed-use commercial precinct”. Many prospective tenants and retailers will, I believe, expect Ikea to bring substantial shopper traffic to Sylvia Park. I therefore think this will also provide a continuing stimulus to rapid growth in the area's commercial leasing market.

Q: Ikea's search for a site has had plenty of twists and turns. Why do you think Ikea ultimately passed over the precinct also owned by Kiwi Property, Westgate, in favour of the more established Sylvia Park? We know that elsewhere in the world Ikea tends to locate far from city centres and likes to cluster with Costco, so why has it taken a different approach this time?

Millie Liang: As an outsider, I can only offer an educated guess. First, Ikea is looking to buy land and build its New Zealand flagship store. Comparing the practical circumstances of Sylvia Park and Westgate, Sylvia Park has an advantage in the land available for purchase. Second, I think the maturity of the retail precinct may have played a significant role in Ikea's choice. New Zealand is a sparsely populated country: how easy would it be to attract the same customer numbers as Ikea stores in densely populated Asian cities? As New Zealand's largest shopping centre, Sylvia Park already attracts more than 11,000,000 shoppers annually. That foot traffic can give Ikea confidence in its prospects in New Zealand. Third, I think the failure of Nido, the large homeware shopping centre in Henderson in west Auckland, from construction to opening and then closure, may also have played a significant role in Ikea's eventual decision against a western retail precinct.

Q: Another retailer local consumers have long awaited, Costco, is due to be completed and open next year. How do you view the impact its arrival has had over recent years on the commercial property market in the Westgate precinct?

Mille Liang: Costco's New Zealand project certainly provides a useful comparison. Since the announcement of its site near Northwest Mall in west Auckland, property prices in Westgate and surrounding areas have risen steadily. Local transaction records over the past two years show sales in residential developments in Westgate and nearby Hobsonville rising sharply, which will undoubtedly also drive rapid growth in commercial property. Several new commercial precincts have been completed near Costco. Buyers interested in investing in west Auckland can keep an eye on the area's development over the next few years.

Contact details

Millie Liang 

Bayleys Associate Director, International Commercial Property

millie.liang@bayleys.co.nz

 + 64 21 968 128

The Millie Liang team is dedicated to providing professional services of a high standard in New Zealand commercial property sales and purchases, farm sales, off-plan purchases, retail leasing and chain business sales and purchases. We provide the most accurate and comprehensive local property information in New Zealand.