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Attachment 2: Rezoning Decision-Making Under Uncertainty

Overall Page Number 000349

Re-zoning decision-making under uncertainty NZIER report to Gillies Group

October 2018


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About NZIER

NZIER is a specialist consulting firm that uses applied economic research and analysis to provide a wide range of strategic advice to clients in the public and private sectors, throughout New Zealand and Australia, and further afield.

NZIER is also known for its long-established Quarterly Survey of Business Opinion and Quarterly Predictions.

Our aim is to be the premier centre of applied economic research in New Zealand. We pride ourselves on our reputation for independence and delivering quality analysis in the right form, and at the right time, for our clients. We ensure quality through teamwork on individual projects, critical review at internal seminars, and by peer review at various stages through a project by a senior staff member otherwise not involved in the project.

Each year NZIER devotes resources to undertake and make freely available economic research and thinking aimed at promoting a better understanding of New Zealand’s important economic challenges.

NZIER was established in 1958.

Authorship This paper was prepared at NZIER by Chris Nixon

It was quality approved by Mike Hensen

The assistance of Sarah Spring is gratefully acknowledged.


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NZIER report -Re-zoning decision-making under uncertainty i

Key points Purpose and objective

This report examines an approach that councils can take to commercial/retailing re-zoning proposals in a time when the retail industry is changing.

This is about decision-making under uncertainty. Uncertainty driven by enabling technologies such as the internet.

Main findings

• Retailing is going through profound and chaotic change which is continuing unabated. We do not know what the long-term durable retail models will look like. This creates uncertainty for retailers, developers, and councils

• Supply side approaches to re-zoning do not cut it. In a situation where retailers can pick and choose where they develop sites, attempting to direct developers into designated retail areas with perhaps lower quality locational options will not work

• Retailers have specific requirements that need to be met before they will invest for 15-20 years. These are mixture of macro (income and population) and micro (traffic volume, visibility, parking) factors that dictate where they locate. The degree of competition may or may not be a factor in a location matrix

• Decision-making under uncertainty requires a systematic approach that can be developed using specific criteria. We have used economic coherence, flexibility, feasibility/profitability, community wellbeing, and meeting RMA requirements to judge proposals.

The analysis takes into account that this is a long-term retail investment proposal and that issues such as household wellbeing will only improve incrementally over time.

Table 1 below sets out an approach for judging the Plimmerton farm development proposal against the decision-making criteria. The analysis sets out the criteria, and explanation of the criteria, the implications for planning, and how the Plimmerton farm development is likely to meet the criteria.

The Plimmerton farm proposal maximises the:

• Probabilities of a successful long-term occupancy with strong demand for retail sites and meeting RMA requirements

• Ability to change tack if conditions are less favourable than expected (Plan B)

• Prospects for durable long-term growth and profitability

• Opportunities for the community and retailers to develop connections that improve wellbeing.


NZIER report -Re-zoning decision-making under uncertainty ii

Table 1 Criteria, planning implications, and the Plimmerton farm proposal

Criterion Explanation Planning implications Plimmerton proposal

Economic coherence

Why retailers want to locate in a specific TLA and site prerequisites. Each retailer has slightly different approaches in the development of their locational matrix

Retailing is going through chaotic change. This will require a mix of site offerings and less emphasis on central city locations

There is strong demand for retailing sites within the Plimmerton farm proposal. While site location is a closely guarded secret (specific to individual retailers) the demand signals suggest this site is preferred over others in the TLA

Maintaining flexibility

Given chaotic change, flexibility and nimbleness are important elements to any strategy

This requires having mixed zoning alternatives for areas which are not growing, a variety of different site developments (portfolio of sites), and ensuring developers have plan flexibility in their proposals

Having alternative site uses if planned developments do not occur. Developers have scoped out alternative use strategies for the Plimmerton site (e.g. office block developments)

Feasibility Do the costs of development meet expectations of long-term profitability

Enable mixed use and avoid strict zonal segregation unless physical attributes of the site constrain such an approach

The development of the Plimmerton farm proposal is well advanced. The costs of developing the 366 hectare site and the retail space have been determined as viable given big and small box retailers’ interest in this specific site

Improved wellbeing The connection between market and non-market factors that improve community wellbeing

Look for the connections between the various non-market factors (typically environmental and social) and the economic factors (e.g. customers and employment) and how they reinforce each other

The design of the Plimmerton farm proposal has a mix of developments that maximise chances of vibrancy and durability for the community

RMA conditions Social, cultural, environmental and economic land use decisions need to conform to community preferences

Ensuring compliance of bottom lines Reflected in various reports commissioned by developers

Source: NZIER


NZIER report -Re-zoning decision-making under uncertainty iii

Why this approach?

Traditional planning approaches to retail re-zoning require modification given the huge upheaval in the sector. Looking backwards to look forward does recognise this structural change and therefore does not assist developers, retailers, or councils in their quest to make a profit, drive durable retail growth over the long term, or improve household wellbeing.

This approach:

• Maximises the chances of durable growth in the Porirua City Council (PCC)

• Allows winning retail configurations to emerge over time when managing further churn and uncertainty are real concerns for developers and retailers

• Over time enables learning about what retailing options work in a planning sense that improves community wellbeing in the PCC.

The risks of not following a portfolio approach

Using traditional zoning approaches increase the risks of lost opportunities for the PCC as traditional centre-based assessments do not match current retailer business models.

Persisting with traditional approaches will:

• Not stop the trends in retailing and customers going elsewhere

• Still mean empty shops on “main street” with or without the Plimmerton farm proposal

• Still mean a mismatch in the quality of existing locations that do not suit retailers or the Council

• Effectively raise the transaction costs of innovation within the district using the RMA in a way it is expressly not intended for.

Further, the development of a narrow view based on modelling population and incomes is unlikely to assist in understanding what is best in a social and economic sense for the district e.g. deterministic modelling cannot explain why with increasing purchasing power and population we still have empty shops on main street.


NZIER report -Re-zoning decision-making under uncertainty iv

Contents 1. Introduction .................................................................................................... 1

2. Profound change is occurring ......................................................................... 2

2.1. Technology is driving change ................................................... 2

2.2. No sign that the churn is stopping ........................................... 2

2.3. The elephant in the room is online sales ................................. 3

3. Modelling approach under taken by Property Economics ............................. 5

3.1. Looking back ............................................................................ 5

3.2. A focus on supply-side elements ............................................. 5

3.3. This approach does not describe current demand-side dynamics ................................................................................................. 6

3.4. Other approaches may be required ........................................ 6

4. How retailers approach locational decisions ................................................. 8

4.1. Requirements of big box retailers ........................................... 8

4.2. Requirements of small box retailers ........ Error! Bookmark not defined.

4.3. Summary of issues ................................................................... 9

5. Decision-making under uncertainty ............................................................. 11

5.1. Traditional approaches are potentially dangerous ............... 11

5.2. A systematic approach is required ........................................ 12

5.3. Criteria for developing an approach ...................................... 12

6. Implications for the current Plimmerton farm proposal .............................. 14

6.1. Economic coherence .............................................................. 14

6.2. Maintaining flexibility ............................................................ 14

6.3. Feasibility/profitability........................................................... 15

6.4. Community wellbeing ............................................................ 15

6.5. Meeting RMA requirements .................................................. 16

7. Conclusion .................................................................................................... 17

8. References .................................................................................................... 18

Figures

Figure 1 Retail price growth has been subdued for five years .................................................... 3 Figure 2 Moving from a static to proactive planning environment ........................................... 10

Table


NZIER report -Re-zoning decision-making under uncertainty v

Table 1 Criteria, planning implications, and the Plimmerton farm proposal .............................. ii


NZIER report -Re-zoning decision-making under uncertainty 1

1. Introduction The Gillies Group have asked NZIER to examine how both councils and developers should consider thinking about commercial/retail zoning decisions in a period of continuing uncertainty and disruptive change in retailing models. The Gilles Group has requested this assessment as it is currently exploring opportunities to rezone a portion of a 280+ hectare site in Plimmerton, known as ‘Plimmerton Farm’ for commercial/retail/mixed use purposes.

There are a number of reasons for critically examining how zoning decisions are made. These include:

• The Gillies Group proposal for a retailing hub/precinct as part of its Plimmerton farm development

• The high rates of retail vacancies in Porirua City and Councils desire to revigorated the Porirua City Centre.

• A Property Economics (PE) report1 that claims that Porirua City could “comfortably accommodate” further retail development, which implies from a narrow supply-side perspective – no retail need for the Plimmerton farm development

• The impact of the chaotic churn associated with retailing with no end in sight and great uncertainty about the winning retailing formats

• The implications for PCC and its zoning options.

The purpose of this report is to provide further understanding about retail zoning decisions should be made in the face of real uncertainty and disruptive change in the current and forecast retail market. We are also currently experiencing a period where well-informed consumers have more money to spend and their spending is much more targeted.

We have drawn on international and domestic literature, case studies, information from councils and developers, perceptions of experts, past assessments, and other sources.

The analysis is intended to give Gilles Group and Council policymakers an indication of the likely approaches that could over time improve the wellbeing of those living within the PCC district. This is an initial undertaking and should be regarded as a scoping assessment in line with good policy practice.

1 Property Economics (2017) Porirua City Business Land Demand and Supply Assessment. Paper for the Porirua City Council.

November 2017.



2. Profound change is occurring

2.1. Technology is driving change Retail businesses around the world including in New Zealand have been turned upside down over the past ten years. All retailers are having to re-evaluate nearly every aspect of their business as globalisation driven by technological changes impinge upon every aspect of supply and demand of goods and services.

The business models are not settled and there are many different retail strategies and tactics being tested in the market. New Zealand’s retail market over the past twenty years have been characterised by:

• The rise of the internet and the continually changing ways we are using both the internet and bricks and mortar retailing

• Sales seemingly being a permanent feature of the retail landscape – unheard of twenty years ago

• Purchasing power is growing as goods become cheaper and cheap credit is available

• Empty shops in most New Zealand ‘main streets’ – many of which will not be filled because they are not suited to new retail business models

• Competition for the retail dollar including cheap air travel

• Customers knowing more about specific goods and services than those doing the selling.

2.2. No sign that the churn is stopping The type of properties, the location, and the way the customer interacts with business are changing dramatically. Furthermore, market analysists have no idea when this “churn” will end or who the retail winners will be. What we do know is that it has not stopped; and more disruption is on the way driven by technology. Some are predicting further change with:2

• Increased use of smart phones tied to loyalty programmes3

• A continued tactic of offering a steady stream of discounts and deals improves throughput and builds customer loyalty4

• Sales being made from anywhere as mobile phones are used more frequently. Also, new ways are being developed to finance those sales. Providing credit or easy payment terms boost sales5

2 https://www.entrepreneur.com/article/298211

3 3 in 5 New Zealanders use smartphones in store to research an item before buying. https://www.nielsen.com/nz/en/insights/news/2018/online-shopping-seeing-huge-growth-in-new-zealand.html

4 Standard retail tactic used in many instances. See for example: https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11854436

5 See https://www.nielsen.com/nz/en/insights/news/2018/online-shopping-seeing-huge-growth-in-new-zealand.html



• The use of social media to drive sales strategies will increase.6

This is despite changes in the tax laws scheduled to take effect in October 2019. While it will levy an extra GST 15% charge, the price competitiveness, quality and variety of goods purchased not stop further growth in internet sales.

Furthermore, these changes as technology continue to merge with bricks and mortar will continue to be dramatic.7 In some cases, the fall-off in sales for those not keeping up have been dramatic with foot traffic dropping by half in three years.8

2.3. The elephant in the room is online sales All aspects of the retail’s base conditions (demand and supply) and the way the retailing is structured (seller/buyer concentration, product differentiation, scale etc.) have changed. This in turn has changed market behaviour (competitor offerings, pricing, investment, business attitudes, strategic behaviour etc.) with a further impact on performance (efficiency, profitability, product variety, on line imports etc.).

The figure below demonstrates the impact of the highly competitive New Zealand market. Core retail price growth (excluding vehicles and fuel) is currently negative while total retail sales prices have increased only slightly. This is a situation that has existed for over most of the six years from 2012 to 2018.

Figure 1 Retail price growth has been subdued for five years

Source: https://www.westpac.co.nz/assets/Business/Economic-Updates/2018/Bulletins-

2018/Q2-Retail-Spending-Review-August-2018.pdf

6 Social media has been used to drive direct sales as well as leveraging sponsorship. In a survey of New Zealand marketing

executives 90% suggested that 90% used social media to leverage their sponsorship programmes. https://www.researchassociation.org.nz/resources/Documents/Marketing-Insights-NZ-Issue-1-2016.pdf

7 In the New Zealand context see https://theregister.co.nz/opinion/2017/12/expected-retail-trends-2018

8 https://www.forbes.com/sites/jeremybogaisky/2014/02/12/retail-in-crisis-these-are-the-changes-brick-and-mortar-stores-must-make/#13b6987213f9



Online retail sales have grown rapidly over recent years, Nielsen’s report that 66% of New Zealanders have shopped on line in the last 12 months.9 The growth in sales has been in double digits since 2010.10 Online retail sales are well over $3 billion or close to 6% of New Zealanders’ total retail expenditure. Figures are understated since not all online sales use credit/debit cards e.g. TradeMe.

A breakdown of retail sales shows that around 24% of all purchases of electronic items are made online, while clothing/footwear (22%), recreational goods (13%), books/magazines (12%), furniture/houseware (8%), and food/groceries (6%) also had elevated online retailing penetration ratios.11

There is more to come. New Zealand has comparable online retail spending rates to Australia but lags the US and the UK. Current estimates of online retail expenditure as a percentage of retail sales in Australia range from about 4.9-6%, whereas in the US and the UK they range from 7-9% and 12-16%, respectively. Further inroads by online retail sales are expected, and at some point will reach similar activity levels to those experienced overseas.

In this environment you have to be brave to rely on forecast floor space out to 2048 when technology is expected to drastically change consumer actions and retailer responses within the next five years.

9 https://www.nielsen.com/nz/en/insights/news/2018/online-shopping-seeing-huge-growth-in-new-zealand.html

10 http://www.serviceiq.org.nz/assets/Uploads/Retail4.pdf

11 http://www.serviceiq.org.nz/assets/Uploads/Retail4.pdf



3. Modelling approach under taken by Property Economics

3.1. Looking back Underlying the Property Economics (PE) paper is a view that the retailing world has not changed and is not forecast to change. Yes, internet sales are factored in, but they have no impact on locational requirements. This approach drives policymakers towards a command and control approach to development and strict adherence to policy developed prior to the dramatic changes signalled in the previous section.

The failure of this approach to recognise structural change in retail business models increases the risks that TLAs make land zoning decisions that do not match business requirements and push business activity out of TLAs. By leaving out the impact of demand the process of approving development projects becomes more uncertain and is likely to be sub-optimal (i.e. there is likely to be a shortage of quality retail land, loss of employment, friction between councils and developers, and loss of investment).

3.2. A focus on supply-side elements The approach taken in the Property Economics report is a supply-side model. The key inputs are:

• Household spending driven by population forecasts

• Business spending, although not all business spending is included

• Physical retail stores

• Internet spending (by credit card)

• Visitor spending.

The main focus is on Porirua City centre and demonstrating the gap between supply and demand. PE rightly focus on the low levels of investment and low retail quality which translates into a lower shopper experience in Porirua City.

They also claim that this provides an opportunity for the PCC to develop a strategy that focuses on “quality over quantity”. However, no insight is provided on how retailers make their locational decisions and this is therefore not imbedded in the modelling structure. Essentially, this is advocating a ‘build it and they will come’ approach without the insights required to understand why retailers would want to relocate to Porirua City.

If supply of land for retailing was the binding constraint or as a way of illustrating the oversupply of retail land in Porirua City, then this approach is perfectly acceptable. However, supply of retail land will not be a binding constraint on retail activity in Porirua City for the foreseeable future. The opposite is true, as the Property Economics report identifies. There is significant amounts of land within the city centre available



for retail development which have not been taken up by retailers. This means that retailers (and big box retailers) are being very careful in their locational decisions.12

3.3. This approach does not describe current demand-side dynamics

The supply approach is not fit for purpose or, in this case, it has been used for the wrong purpose: it does not assist the PCC in determining the most efficient (both in terms of market and non-market) approach to business land requirements.

In the PE report, how retailers think about locational decisions is not considered. Demand-side issues are swept over with statements such as:

…with an underutilised Central City area, much of this land demand can be comfortably accommodated in the existing Central City zoned commercial provision by improving its development efficiency, land utilisation and quality of development.” Property Economics Porirua City Business Land Demand and Supply Assessment. (PE, 2017, p77)

The focus on the central city area where costs have already been sunk and the suggestion to sink more PCC resources into the central city seems hugely risky given no analysis of how business think about their locational decisions.

While councils need to consider a range of factors related to re-zoning (economic and non-economic) they need to at least consider firm locational decisions. Relying on assertions such as:

Any growth in commercial zones in the suburban environs are likely to be required mostly to accommodate convenience retail and commercial service activities in the new residential growth cells of the District to meet growing requirements at the localised level. These are anticipated to be small convenience centres whose size of the local market” (PE, 2017, p78);

The above statement appears to be misleading given the demand for retailing space associated with Plimmerton farm re-zoning application.

3.4. Other approaches may be required Unless there is unexpected demand for retail space and internet penetration does not reach levels seen in the US and UK,13 then the gap between retail space and retail occupancy is likely to be higher than PE have predicted.

The PCC fully understand this and are taking steps to develop an approach that assists them repurpose the central city.

12 In our discussions with policy and planning staff at PCC they are acutely aware of the oversupply issues and are moving

towards approaches that will allow for more mixed zoning approaches.

13 PE have estimates of 5% retail sales over the internet rising to 15% over the forecast period. New Zealand retail sales are currently 6% and are forecast to rise to 25% over the forecast period (given overseas experience). We note that PE internet sales are based on BNZ data for credit cards. This does not include big sellers such as TradeMe who also rely on other forms of payment such as internet banking.



Central to this approach is to put householders in the PCC at the centre of the analysis and ask: what will increase their wellbeing? These issues will necessarily include understanding the strength of connections between market and non-market relationships and how they interact.



4. How retailers approach locational decisions

Being in the right location is a key ingredient in a business's success. If a company of any size selects the wrong location, it may not have adequate access to customers, workers, transportation, materials, and so on. Consequently, location often plays a significant role in a company's profit and overall success.

Given the investments are long term and high cost, locational decisions are critical.

4.1. Requirements of small retailers Smaller retailers – can be complementary and add value to any particular site with co-location. Depending on the strategy of smaller retailers, being in the same retail precinct (as a larger retailers) can offer substantial advantages to smaller retailers by:

• increasing the foot traffic;

• offering complementary services and products; and,

• making the destination more attractive to a wider range of customers.

Many of the “must haves” for small retailers are similar to the large retailers e.g. traffic volume, room for expansion, population/income target market, ease of motor vehicle access, building visualisation etc. However, small box retailers must ensure that their target market is compatible with those they are co-locating with.

Complementary, but not competing businesses are ideal neighbours for small box retailers. Locating near restaurants or entertainment venues, or even a big-box store, can benefit small box retailers if those businesses attract your target customer base.

4.2. Requirements of big box retailers Big box retailers are internally and externally driven to review opportunities to open new stores:

• Externally, they are faced with significant pressures from competitors to expand their network of stores

• Internally, shareholders expect tangible evidence of expansion and growth.

Big box retailers are attempting to increase sales and market share, improve customer service, to hedge against the uncertainties of the market environment, and drive economies of scale in advertising and distribution. Expansion may be an outcome of this approach. As part of this approach they developed criteria for site selection which in effect sets out a hierarchy of sites.

To do this, retailers drive toward:

• An efficient national or regional network of stores designed to reach their customers



• A level of profitability where a certain number of customers are willing to spend a certain number of dollars in their store.

Each big box retailer will have a different view about locating near a competitor. They will have specific requirements which will be factored into site selection. Considerable resources are devoted to the site selection process. While there is no ‘cookbook’ approach, and variables of importance do differ, they include the development of models that are based on their past decisions and the lessons learnt from those experiences.

What actually is on each firm’s list differs from firm to firm. Typically, it is a closely guarded secret. From the literature four main issues dictate site selection:

• Traffic volume. Lots of traffic may not mean lots of customers. Retailers want to be located where there are many shoppers but only if those shoppers meet the definition of their target market. Important questions include:

− How many people walk or drive past the location?

− How well is the area served by public transportation?

− Can customers and delivery trucks easily get in and out of the parking lot?

− Is there adequate parking?

• Building visualisation and access for motor vehicles both ways. Visibility requires looking at the location from the customers’ viewpoint. In many cases, the better the visibility, the less advertising is needed. Easy motor vehicle access to the site assists with convenience

• Is there room for expansion? All locational decisions have some degree of uncertainty attached. If business is better than expected, then having room to expand is essential

• Population and income thresholds that need to be met. Ensuring that the area is compatible with business objectives is a crucial objective.

These are mixture of micro and macro factors which combine for a firm in a type of ‘sweet spot’. These are ‘must’ haves that all need to be present before a firm is likely to fully investigate a site.

4.3. Summary of issues The following diagram brings together and summarises the main issues from the previous two sections. It sets out the implications of using supply-only models, the factors that are changing retail configurations and locational decisions, and newer way of thinking about re-zoning options.

The new thinking reflects changes in the retail industry and consumer choice which has spatial, locational, and assessment impacts. This informs Section 5 which develops a set of criteria for thinking about re-zoning decisions.


https://www.thebalancesmb.com/target-marketing-2948355


Figure 2 Moving from a static to proactive planning environment

Source: adapted from REAC (2017), NZIER



5. Decision-making under uncertainty

5.1. Traditional approaches are potentially dangerous

PCC is faced with making decisions on retail zoning under conditions of uncertainty. How then should PCC decide on its approach to retail zoning? Should it continue the same approach (based on history), hedge their retail site bets by offering a variety of sites, or wait and see?

There are a number of ways which a council can react. One of the most influential approaches is to use portfolio theory (Markowitz, 1952). Portfolio theory promotes the idea that owning different types of assets reduces risk (relative to owning similar types of assets).

In the case of the PCC, this means allowing different approaches to zoning applications for retailing. This strongly suggests that the chances of traditional approaches to thinking about re-zoning will not be much help in developing thriving retail precincts within the PCC.

Standard practice is to lay out a vision of future events precise enough to be captured in a district plan. While there maybe be sensitivity analysis done and slight deviations, the goal of such an approach is to find the most likely outcome and create a statutory framework based on it.

That approach serves councils well in relatively stable retailing environments. But when there is greater uncertainty about the future, it is at best marginally helpful and at worst downright dangerous.

One danger is that this traditional approach leads Councillors to view uncertainty in a binary way—to assume that the world is either certain, and therefore open to precise predictions about the future, or uncertain, and therefore completely unpredictable.

Planning processes that require planners to bury underlying uncertainties in their zoning approaches can lead to less desirable places for people to live. Further risks/impacts include:

• Shutting down re-zoning options by using traditional approaches will not stop the trends in retailing

• If re-zoning is declined, large retailers will go outside the PCC. There will be empty shops on ‘main street’ with or without the Plimmerton proposal

• Developing a narrow view based on modelling population and incomes is unlikely to assist in understanding what is best in a social and economic sense for the district e.g. deterministic modelling alone cannot explain why with increasing purchasing power and population we have empty shops

• The potential for mismatches increases: the quality of existing locations will not match the requirements of ‘new’ retailers



• You will effectively raise the transaction costs of innovation within the district using the RMA in a way it is expressly not intended for.

5.2. A systematic approach is required Managing the mismatch risk between the location of supply and demand for commercial land requires a flexible and systematic approach. This approach avoids making critical strategic decisions that commit the PCC to one approach to zoning. Instead they allow for different approaches by developers to promote flexibility and ensure that proposals have sufficient quality to deliver improved outcomes for the community.

The uncertainty associated with retailing means that there are range of potential futures. That range is defined by a limited number of key variables (i.e. not the least of which are the business models that will emerge and the type of real estate that they will require), but the actual outcome may lie anywhere along a continuum bounded by that range. There are no natural discrete scenarios. All elements of the approach to zoning would change if the outcome were predictable.

This further points towards councils ensuring a range of locational options.

5.3. Criteria for developing an approach From a national and local perspective the aim is to maximise wellbeing of those who live in the PCC. Our approach is to:

• Maximise the chances of durable growth in the district

• Allow the winning retail configurations to emerge in a time of uncertainty as retailers invest in what they consider the best options

• Allow for learning about what retailing options work in a planning sense.

To illustrate the types of issues that councillors should consider we have set out key judgements that could be used as criteria for assessing re-zoning applications. The criteria could include:

• Economic coherence. Why do retailers want to invest in a specific site and not others? There are judgements about:

− Location is the most important decision for retailers since they are likely to have specific requirements for sites. Getting the site selection right is important since the investment needs to be durable for at least 10-20 years

− Expected growth in population and incomes

− Competition from other “like” retailers

− Co-tenancy agreements

• Maintaining flexibility. In a period of uncertainty, the ability of specific sites to change use and retro fit is extremely important. This improves site durability and helps with the ‘Plan B’



• Feasibility. Does the development deliver the right mix of activities for the retailer to be profitable? Although attracting economic activity is important it must also support and fit into the local community

• Improve wellbeing. How does the retailing site interact with the local community in a way that strengthens community and retailer wellbeing e.g. increase choice, less travel time, and provision of other amenities

• Meeting RMA requirements. This is a bottom line.

Not all decisions made are going to be the ‘right’ ones – since nobody foresaw the struggles on ‘main street’. In an uncertain environment it is prudent for councils to judge each retailing re-zoning application on the quality of the offering and the best information they have at the time in a systematic way.



6. Implications for the current Plimmerton farm proposal

A number of factors need to be considered when matching the criteria outlined in the last section with the Plimmerton Farm proposal. These are set out in the following section.

6.1. Economic coherence Developing a greenfield site requires site business (retailer) confidence, developer confidence, and the right economic foundations. While nothing is certain:

• The macro (demographics and incomes levels) dominate the rationale for siting a retail complex in an area. However, this is a necessary but not the only condition since the actual site depends on other factors

• The micro (site location, traffic, visual effects) foundations determine the specific siting of a retail complex. Typically, big box retailers will have a hierarchy of sites which they consider based on previous experience of ‘like’ sites and other tightly held information.

By mixing and matching the macro and micro foundations for successful site development retailers are attempting to maximise their success/profitability over time.

One factor they will also be interested in is competitor intensity. This consideration requires understanding the influence of an existing competitor site near a proposed site. Depending on the type of retailer, more competition may bring in more customers or less to a specific retailer.

Planning implications:

• Recognise that retailers may require different planning considerations and measures

• Centrality is not relevant for some retailers.

Potential policy stance:

• Recognise that central city areas are not able to accommodate all retail formats. Priority should not be given to the view that the central city can accommodate all social, cultural and commercial

6.2. Maintaining flexibility The retail industry is in a state of flux. In the real world, business and councils have found different ways to deal with development uncertainty. One of the best approaches is to adopt a flexible approach to investments.

By improving the flexibility of the supply offerings and testing the robustness of developer plans a more durable approach




• Anyone can sell or shop anywhere and at any time online. This is changing land and locational decisions as demand changes

• Large retailers do not necessarily want or need to cluster with other retailers

• New technologies will continue the disruption.

Potential policy stances:

• Facilitate flexible options for bricks and mortar stores to adapt to changes in the retail environment and provide consumer choice.

6.3. Feasibility/profitability Increasingly feasibility requires the development of mixed-use areas on the back of the new service economy which requires a retail response. Uncertainty around commercial demand and cost/affordability factors, are informing a shift toward more flexible adaptable spaces. In the case, the Plimmerton farm proposal is well advanced and the costs of the 386 hectare development are justified by the strong demand for housing and retail space. Feasibility is enhanced by integrating mixes of different land uses and activities and providing flexible spaces to accommodate a variety of uses.


• Retail change should be facilitated outside traditional centres to allow for the evolution of retail business models. Mixed zones are more popular for living, working, recreational areas. We expect this will have implications for the increasingly dominant service sector

• Examples include retirement villages, hospitals, and doctors’ surgeries and other theme-based employment generators which can be integrated with single structure or precincts.


• Focus retail activity in centres and enable mixed use centres rather than zonal segregation and separation of uses.

6.4. Community wellbeing We understand that community wellbeing is impacted by a number of factors that are both market and non-market. However, we are well aware that there is more than one way and there is no right way to improve community wellbeing.

What is important however, is the strength of the connections between the retailing precinct and community. A retail development which supports the community by providing the right offerings and experience at competitive prices (given that consumers increasingly have more choice) will have a positive impact on the community over time.




• A commercial site that provides choice for consumers is likely to have mutually reinforcing impacts that improve wellbeing (jobs, consumer choice, and focal point for the community)

• Location also means less driving time for the local community and adds to the vibrancy of the local community.


• Focus on the delivery of mutually reinforcing factors that underpin wellbeing. Job creation and consumer satisfaction and how that encourages community interaction.

6.5. Meeting RMA requirements We acknowledge that the physical and cultural characteristics of sites, along with traffic, environmental, urban design, engineering, landscape considerations are all major considerations which need to be satisfied through a rezoning process.



7. Conclusion Retailing is in a state of flux. This has implications for the retail trade and their locational decisions, councils and the way they zone land, developers, and the wellbeing of individuals in the district. This report examines an approach to thinking about this issue under uncertainty.

To describe the implications of retail churn for land-use decisions we have briefly examined:

• The profound change that retailing has under gone over the past 10 years including the impact of enabling technologies such as the internet

• The PE report prepared for PCC that develops a supply-side view on the provision of business land to 2048. We set out why this approach is unlikely to achieve PCC’s objectives or improve household wellbeing

• How retailers think about their locational decisions and why they are unlikely to relocate into the city centre

• The type of framework that PCC should consider using when re-zoning decisions are made

• Application of the framework to the Plimmerton farm site.

NZIER’s view is that the proposed development for the Plimmerton farm site with a commercial hub will be a prudent investment for the developer. Given the uncertainty around retailing models, the Plimmerton farm proposal provides Council sufficient flexibility, is economically coherent, and strengthens the PCC retail property portfolio. By doing this it will maximise the chances that the PCC is able to fulfil its economic and non-economic wellbeing objectives.

We must stress that this is a preliminary analysis of the TLA and possible approaches to rezoning. We know that other RMA factors also have a major bearing on re-zoning applications. These are the subject of other reports.



8. References Markowitz H (1952), Portfolio Selection, March 1952, pp 77-91. The Journal of Finance.

Property Economics (2017) Porirua City Business Land Demand and Supply Assessment. November 2017

REAC (2017) Retail Expert Advisory Committee. Independent Recommendations Report. June 2017.

https://www.planning.nsw.gov.au/~/media/Files/DPE/Reports/retail-expert-advisory-committee-independent-recommendations-report-2017-06.ashx


