Build it and they will come
Total Property - Issue 8 2019
An estimated $129 billion will be spent on infrastructure in the next decade, according to Treasury, and this is set to drive new patterns of supply and demand – and opportunities – in the commercial property sector.
In a new report, Infrastructure: Driving real estate opportunities, Bayleys Research argues the time is right to unleash a programme of long-term projects. Key reasons include a shortfall in infrastructure due to decades of underinvestment.
Spending now, the report argues, would stimulate a slowing economy while laying foundations for future expansion.
Record-low interest rates have reduced the cost of debt funding, while the global hunt for yield and diversification makes infrastructure an attractive investment target for the likes of global superannuation funds.
Bayleys’ national commercial and industrial director Ryan Johnson says infrastructure development will create change in the commercial property sector.
“While in many parts of the country there’s a catch-up game underway, in other cases, infrastructure programmes are leading the way and determining new growth areas.
“This is particularly true for the industrial market where burgeoning logistics and supply-chain operations, a thriving primary sector and e-commerce trends are driving property expansion into former greenfield sites, once largely rural areas such as Drury, south of Auckland, and into the regions,” says Johnson.
“Large-scale projects will transform the built environment, improve productivity and property fundamentals and have the potential to redefine towns and cities.”
Report author Goran Ujdur says there’s a “desperate need” to upgrade infrastructure. The report identifies 44 projects worth $44 billion which will lift local economies and shape the location and demand for property.
Auckland dominates with $29 billion including the City Rail Link (CRL), Auckland Airport expansion and New Zealand International Convention Centre.
Wellington has $7.6 billion of projects, including the Transmission Gully motorway and 30-year ‘Let’s get Wellington moving’ transport programme.
Waikato (including Waikeria Prison and key transport projects), Canterbury (Te Pae – Christchurch Convention Centre, metro sports facility and multi-use arena) and Dunedin (new hospital) each top $1 billion, while Hawke’s Bay, Manawatu, Gisborne and Taranaki are also targeted for substantial spending.
“Not only does investment in infrastructure feed economic activity and job growth, it also acts as a catalyst having significant knock-on effects to surrounding real estate,” Johnson says.
“Improved road and rail networks, strong telecom systems and efficient and affordable utilities such as electricity and water are fundamental to most real estate developments.”
The report outlines how development and demand for distribution and logistics property is heightened near new roading off-ramps – as seen in Horotiu and Te Rapa Gateway beside the Waikato Expressway.
Inner-city and suburban rail improvements are driving higher-density residential and mixed-use or retail space close to stations, such as town centre developments in Auckland’s New Lynn; and large-format retail, commercial and industrial development on the Kapiti Coast, supported also by roading improvements.
Demand and values are rising around stations that will form part of Auckland’s CRL – the biggest example being Precinct Properties’ $1 billion commercial, retail and hotel development at Commercial Bay. PwC estimates 2,000 apartments and 550 hotel rooms will be developed around Aotea, Karangahape and Mount Eden stations, plus a proposed office tower at Aotea station.
Rail linking to major ports and airports is supporting new business/industrial parks and inland freight ports. Tainui Group Holdings’ Ruakura, with a 192-hectare logistics precinct and 30-hectare inland port, is supported by links to Auckland and Tauranga ports.
Rolleston, in Canterbury, has seen the development of Carter Group’s IPort industrial hub, and the adjoining MidlandPort, Lyttelton Port Company’s inland port with a rail link to Lyttelton and access to State Highway 1.
Expanding sea and air ports such as the Port of Tauranga and Auckland Airport are stimulating local clustering of logistics and distribution premises.
A planned $1.4 billion hospital in Dunedin is expected to drive demand for staff, visitor and retirement accommodation and specialist private medical facilities.
Infrastructure New Zealand chief executive Paul Blair points to key projects illustrating the flow-on benefits.
The $366 million of extensions to Auckland’s Northern Motorway between 1995 and 2000 were shown to deliver $2.3 billion in gross benefit, while $610 million of rail upgrades to Auckland’s Western Line brought $667 million in benefits, he says, also pointing to the billions in commercial property investment sparked by the CRL.
“The benefits almost 100 percent went to private land holders,” he says, though the Government is increasingly discussing measures which would see owners contribute towards development costs.
Blair welcomes initiatives including the new Infrastructure Commission and the Urban Growth Agenda aimed at removing barriers to land and infrastructure supply.
However, he says the key lies in viewing infrastructure as an investment not a ‘cost’ and agreeing a long-term national vision.
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