Follow the money, follow the infrastructure
Total Property - Issue 2 2018
In politics and in business, the maxim is: follow the money. But in the current commercial property market, it’s not so much follow the money, but follow the infrastructure.
Globally, increased levels of spending on infrastructure tends to be one of the most common factors in boom property markets.
I’ve spent the last three years working in Sydney, and it’s no coincidence that the commercial and industrial property market there is enjoying record growth at the same time investment in infrastructure development is at its highest level in more than a decade.
Billions of dollars have been poured into light rail schemes, new railway lines, road tunnels and highway extensions, improving connectivity in the city and helping to drive activity in office, retail and industrial sectors, not only in established commercial hubs but also far flung suburbs.
Sydney is a city on the move – unemployment is low while GDP and net migration are high – and those who own commercial real estate there have seen good capital growth over the years.
And the good times are set to continue.
Spending on big ticket infrastructure projects in Sydney, and the rest of Australia, is set to run at more than A$16 billion a year until 2023, while expenditure on transport infrastructure will more than double total spend to A$37 billion in 2020.
In New Zealand, investors seeking long-term growth would be well advised to follow the infrastructure trail.
BACKBONE FOR INVESTMENT
Auckland tends to dominate conversations around infrastructure, and without a doubt, there is a real need to improve transport in the city and develop transport infrastructure and strategies that plan for and lead population growth, not simply react to it.
But now is the time for the regions to shine.
The Government is to be commended for its commitment to building capacity in areas of New Zealand that have fallen behind the rest of country, through its $1 billion a year Provincial Growth Fund.
Regional Development Minister Shane Jones has given us a taste of how and where he intends to spend the money, announcing last month the first projects to receive funding. Infrastructure and transport have a big presence.
As is clearly the case in the “Golden Triangle” of Auckland, Tauranga and Hamilton, major road and rail infrastructure provides the backbone for commercial property investment opportunities – it’s where business and industry tends to congregate.
The cherry on the top is the Government’s positive moves towards increased decentralisation of government sector departments, which would drive regional employment levels and revive office and service sectors.
This has the potential to provide a greater number of investment opportunities in new locations, benefiting a buyers’ market somewhat starved of options.
For investors looking to achieve capital growth, the best strategy will be to focus attention on locations where spending on new infrastructure, particularly transport infrastructure, will drive demand for commercial real estate. Being able to keep track of upcoming projects and research local authority and central government economic growth plans has never been more important, because the best time to buy in an area is before it starts to feel the benefits of a new infrastructure project, when prices have not had a chance to climb.
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