Total Property - Issue 8 2019
The commercial property sector is riding an extended cycle amid record-low interest rates, rising economic uncertainty and regulatory challenges. We asked experts what they see ahead in the 2020s.
Industry view: Building thriving cities
Leonie Freeman, chief executive, Property Council
The Property Council has reset its vision to “Together, shaping cities where communities thrive”.
While members need to make a profit, there’s a higher purpose around legacy and leadership. Our purpose allows us to bring the industry together to shape the urban landscape, creating cities where communities flourish.
Buildings must link to infrastructure and amenities such as schools, transport, shopping centres and employment.
The industrial and commercial sectors remain strong but, for some, deals are becoming harder. There are complexities to regulations which sometimes defy logic. While there’s been prolonged growth, the sector is grappling with issues including the shift in office demand as employees seek flexibility, and online shopping’s impact on retailers.
Headlines have been littered with building company collapses, the challenges councils face in the regulatory area and finding ways to fund infrastructure other than raising rates.
A lot of change will come from demand in how buildings are erected, sustainable advantages and technology, and how they work.
The pace of change will increase. It’s essential we pave the way for investment in infrastructure. Cities need innovation in products and design, consenting capability and capacity. The industry is crying out for new financing solutions and cohesive, future-focused planning.
Retail: Beyond shopping
Clive Mackenzie, chief executive, Kiwi Property
Retail is changing as shopping centre visitors increase and what people do has shifted.
Shopping centres are about more than retail. They’re becoming community spaces where friends enjoy experiences: eating at a restaurant, catching up at a bar or cafe, or watching a movie. The range and quality of experiences will increase.
Internet shopping is on the rise; many tenants have stepped up, also thinking about the complementary roles of online and physical outlets. For some, that’s meant creating flagship stores; for others, services like click-and-collect.
Domestic online purchases are growing faster than international ones, creating opportunities for Kiwi retailers. It’s the job of centre owners and operators to accommodate new models.
Centres will continue to evolve. They’ll become integrated lifestyle hubs, featuring apartments, offices and retail.
Locations like Sylvia Park will be at the fore; we’re building a galleria with 60 new stores. At other centres we’re focusing more on enhancing the retail mix and amenities.
While e-commerce has created challenges, it’s opened up data that will enable unprecedented consumer personalisation. Retailers can better track and shape the customer journey. Omni-channel shopping will become the norm.
Industrial: Top of the pyramid
Simon Woodhams, chief executive, PFI
The pricing for industrial assets is heated but the sector is viewed as the top asset class.
Research forecasting total returns of 12 asset classes in the next five years ranked industrial secondary property (11.5%) first, with prime industrial second.
Prime industrial is fully priced. A $10 million building is likely to sell for a 4.8-4.9 percent yield. Secondary property can be picked up for a mid- to late-5 percent yield.
Secondary property is sitting at warehouse rents of $100-$115 per square metre while new-build rents are $140-plus, so there’s the ability to lift rents for B-grade buildings.
There’s scarce land and construction costs have risen leaving it to big, long-term landlords with the balance sheets to develop and hold. Buying a new building is a battle, with huge capital in the market.
While interest rates remain low people will hang on for longer. It would be a surprise if there was a massive correction.
Trends include a move towards quality and maximising use of expensive land, with developers considering drive-through canopies, high studs, automation and double-storied warehousing. Technology will solve a lot of issues and greening of the industry will be advanced.
Office: Greener buildings and a flight to quality
Culum Manson, director, Mansons TCLM
Tenant demand for bigger floorplates and six-star green buildings is driving our new office complexes.
We use the six-star standard on all base-builds. Millennials expect office space that suits their needs, driving a flight to quality and greener environments including smart lighting, natural light and ventilation and water recycling.
Attracting tenants to new buildings is not difficult as there’s a hankering to upscale. Buildings are now smarter and their construction and fit-out is far superior. If developers build them, tenants will lease them.
Many older buildings have been redeveloped into hotels or apartments, and this will continue.
We spec-build most of our properties, leasing them when they’re under construction.
Chief executives are becoming more consultative to ensure staff are happy and can be retained. This comes down to the working space, conditions for staff and technology.
Finding the right land to build is becoming harder. Rising construction costs are another major factor. Only bigger developers with strong balance sheets are able to take on the risks of multi-million dollar projects and make them work.
We have to take more account of the environment and design, which is good for cities.
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