New Zealand Tourism Market
Tourist arrivals in New Zealand reached new record levels in the year to June 2015 as Chinese, Australian and USA visitor numbers all increased by over 10 percent over the last year. New Zealand is inching closer to the three million visitor mark.
Short-term visitor arrivals rose nine per cent to 177,000 in June from the same month a year earlier. Holiday arrivals rose 10 percent to a record 2.99 million for the past 12 months, just 8,000 short of the three million mark according to Tourism New Zealand.
Compared with the year ended June 2014, significant increases in visitors were registered from all of the Country’s largest markets e.g. China (up 72,880), Australia (up 49,824), the United States (up 21,632) and Germany (up 5,280).
Some of the largest increases, in percentage terms however, were recorded in visitors from emerging markets particularly Taiwan where visitor numbers increased by 37.7 percent and India where the increase was recorded as 25.9 percent.
Bolstering the appeal of New Zealand as a holiday destination is the long awaited devaluation of the local currency on foreign exchanges. This combined with the fact that many international economies have moved back to growth paints a positive picture for New Zealand’s tourism sector.
There were 2.86 million visitor arrivals to New Zealand in the year ended December 2014, the highest ever annual total. This was five per cent higher than in the year ended December 2013 (2.72 million).
Compared with the year ended December 2013, the biggest annual increases were from the four main source countries: China (up 35,900), Australia (up 29,700), the United States (up 19,100) and Germany (up 9,100).
International Visitor Spending
For the year ending March 2015 the total spend by international visitors increased to $8.155 billion, up 21 percent over the 12 months to March 2014. International visitor spend in New Zealand continues to grow, with spend from China now at a record $1.24 billion, up 61 percent from March 2014.
In addition to China, significant increases in spend were recorded for the key markets of UK (up 39 percent), Germany ( 35 percent), and Canada (up 27 percent), from March 2014 to March 2015.
In May 2015, a total of 2,338,377 guest nights were spent in short-term commercial accommodation in New Zealand, an increase of 122,701 nights (5.5 percent) from May 2014.
Both the North Island (up 55,026 or 3.9 percent) and South Island (up 67,674 or 8.5 percent) recorded an increase. In the year to June there were 35,447,075 guest nights, an increase of 1,756,950 or 5.2 percent on the May 2014 year.
International and Domestic
In May 2015, guest nights comprised 62.6 percent domestic guests (1.464 million guest nights) and 37.4 percent international guests (875,000 guest nights). Compared with May 2014, domestic guest nights increased by 33,000 (2.3 percent) and international guest nights increased by 90,000 (11.4 percent).
New Zealand Commercial Market
The overall vacancy rate in the Auckland CBD office market declined further in the first half of 2015 to a historic low of 8.8 percent in July reflecting some of the tightest market conditions seen in a number of years.
This is a fall of 1.8 percentage points from Bayleys Research’s January survey and is driven mainly by a large decrease in B Grade vacancies as prime (Premium and A Grade) vacancy is already at a very low level and mostly comprises smaller, part-floor tenancies.
Some of the reduction in unoccupied space is due to buildings temporarily being withdrawn from the supply chain for refurbishment. However, there continue to be more businesses leasing or buying premises for occupation in the CBD than are vacating, with a net absorption of 15,134m² of space in the first half of the year.
This reflects continuing growth in New Zealand’s services sector, which accounts for about two thirds of the economy and drives office space absorption. It was at its most buoyant level in 11 months in June, with the BNZ BusinessNZ Performance of Services Index (PSI) rising to its highest point since July 2014 and extending a run of continuous expansion since October 2009. All of the five sub-indices were above the 50 reading that separates contraction from expansion.
A majority of economic commentators expect New Zealand’s economic growth to slow over the short term future. While activity growth is softening, support remains from accommodative monetary conditions with very low interest rates, a declining currency, a strong construction sector pipeline and record high net migration which is helping fuel the services sector and hence the demand for office premises.
Within the Auckland CBD, an increasing amount of that demand is focused on office buildings near the waterfront, over the past few years development has focused very strongly on the northern sector of the CBD with most of the blue chip tenants now situated in this area where 80% of prime premises are located.
Given the overall reduction in vacancy in the Auckland CBD in the last six months, the pressure on available office space is only going to continue over the remainder of the year as businesses remain in expansion mode.
There is currently around 60,000m² of CBD office accommodation on which construction is underway or soon to commence, with another 30,000m² being refurbished. The NZME building is nearing completion in Victoria Street West, while work is well advanced on Fonterra’s new head office building opposite Victoria Park and a 9,000m² building behind it which is being speculatively developed.
Further out, Precinct Properties is proposing new office buildings in the Wynyard Quarter and an office tower on the Downtown site, going head to head with Mansons TCLM which is seeking resource consent for a high rise tower on NZME’s current site in Albert Street.
There could potentially be a further 170,000m² of new CBD office projects completed over the next five years, providing working space for another 11,000 employees in the inner city which currently has a growing working population of around 100,000.
However, with the next wave of development still in its formative stage, the total office inventory will not expand significantly in the short term. Premium and A Grade office accommodation, for which the current CBD vacancy rate sits at close to 3 percent, in particular will remain in very tight supply for some considerable time.
There is already evidence of significant upward pressure on rentals for prime space as a consequence, reflected in a net rental of $650/m2 for the top floor of a new CBD building nearing completion. Rentals are likely to keep on rising until the development pipeline increases significantly.
An increasing amount of tenant demand is being focused on CBD buildings near the waterfront.
New Zealand Residential Market
A strong national economy, low interest rates and record migration have continued to support New Zealand’s residential property market over the course of the last year.
The national Median sales value has increased by 7% over the period from the June Quarter of 2014 to mid 2015 reaching a new record high of $460,000. Sales volumes have also strengthened over the course of the year. in the 12 months to June 2015 78,223 sales were recorded by the Real Estate Institute of New Zealand up 4,433 or 6% on the June 2014 total.
In both June and July the Reserve Bank of New Zealand cut the Official Cash Rate (OCR) reducing the rate from 3.5% to 3.0%. The Bank has subsequently released a statement advising that further easing is likely over the course of 2015 given weak commodity prices, and a lack of inflation within the economy.
These steps have resulted in the New Zealand dollar weakening on the foreign exchanges further enhancing interest from oversea buyers in the New Zealand property market.
The 7% increase in national values has been driven predominantly by the performance of the Auckland market where values have increased by 21% over the 12 months to June 2015 reaching $750,000.
Removing Auckland sales from the national figures would result in the national median having risen by 3.8% over the year.
The Auckland market is mirroring the performance of other gateway cities around the world such as Sydney, San Francisco, New York, Vancouver and London. It is home to the head offices of a vast majority of national and international corporates operating in the country. As a result Auckland has become the economic hub of the nation attracting high levels of both internal and international migration given the career opportunities which it provides.
In the year to June 2015 Auckland net international migration gain was 26,800, accounting for approximately 50% of the national gain. This migration boom has accelerated the region’s population growth creating a significant housing shortage. While the development sector has started to repond the rate of new house building is not yet at a level which is reducing the shortage.
Given the above drivers further residential property price appreciation is likely overt he next year. Once again the national market will be driven by Auckland, it has, however, become evident over recent months that there is growing pressure on other markets, particularly those close to Auckland as Auckland residents buy outside of the region for retirement, investment or due to relocation.
New Zealand Rural Market
The rural market in New Zealand has remained robust across New Zealand over the last year despite a sharp downturn in dairy commodity prices.
Land values have continued to increase over recent months according to sales statistics released by the Real Estate Institute of New Zealand. In the June quarter of 2015 the median sales value of farmland across the country reached $29,141 hectare the highest value recorded since the March quarter of 2009, the peak of the previous cycle.
There has been a slight softening in sales volumes over the last year albeit that at 1,737 sales recorded over the last 12 months sales activity remains at elevated levels.
Values are being supported by high levels of demand for high quality well located properties. Such properties are rarely brought to market and therefore when they are they attract high levels of competition.
The value of dairy products have fallen sharply over the course of 2015 which will have an adverse impact on the cash flow of farmers operating in this sector as payouts from dairy companies and co-operatives are cut.
The impact of the reduction in dairy values has had a profound impact on the commodity price index. The latest index figures, however, hide the fact that other sectors of the rural economy are continuing to perform well.
As the graph below illustrates export income for meat, fruit and wool have increased in the 12 months to June.
The value of fruit exports have reached new record levels, approaching $2 billion in the year to June. This figure is driven primarily by kiwifruit and apple exports.
Beef prices are holding at elevated levels and there has been a strong performance by the wool sector.
The rural export sector is now also benefitting from a decline in the value of the New Zealand dollar on the foreign exchanges. The local currency’s trade weighted index has fallen by approximately 16% since July of 2014. This will have a beneficial impact upon farm gate prices when export earnings are converted back to New Zealand dollars.
While commodity prices clearly change regularly, the long term drivers of the rural sector remain very positive. The world population is increasing and the niddle class is growing rapidly, particularly across Asia. As the population becomes wealthier it demands higher quality, safe food which New Zealand produces. In addition the government continues to negotiate Free Trade Agreements (FTA’s) in order to improve access for the country’s agricultural exports.
The continued strong demand for New Zealand agricultural land indicates that it is the long term drivers as opposed to short term fluctuations in commodity prices that drive the rural property market.