Forward view

Forward view

Total Property - Issue 8 2018

We asked industry experts to scan the horizon for commercial property insights. Here’s what they’re seeing over the next year and beyond.

Interest rates: going nowhere for now

Cameron Bagrie, managing director, Bagrie Economics

The outlook carries a lot more uncertainty than normal. We have productivity and housing affordability issues, but most fundamentals look sound. The government books are strong. Unemployment is low. The slowdown in Auckland property has reduced the risk of a severe correction.

The economy is doing okay, but not well enough to stoke inflation and bring the RBNZ to the hiking table. Rates are going nowhere for now.

Residential investors eye commercial

Nick Goodall, head of research, CoreLogic NZ

Stricter LVR limits, the Healthy Homes Guarantee Act, the foreign buyer ban, the bright line test and probable removal of negative gearing are causing many residential investors to question whether to exit the market or stop buying property.

We’re hearing of investors widening their net to include commercial property. Banks are concerned about investors not understanding the differences.

This has improved demand, but poses a question about the sustainability of this demand.

Industrial remains a top performer

Connal Townsend, chief executive, Property Council New Zealand

Office income and capital returns are just above the long-run average. Total returns were 12 percent in the March quarter.

Industrial property remains a top performer, with a total return of 10.8 percent last year – 12.2 percent over five years. This sector is open to investment as warehouses become third-party logistics hubs for online shopping.

Demand for commercial property overall will remain steady.

On the road to carbon-neutral

Andrew Eagles, chief executive, NZ Green Building Council

By June 2019 there will be a tool for verifying achievement of a carbon-neutral standard for commercial buildings. This will go out for industry consultation in February.

It’s aimed at existing buildings. Owners and managers will be able to use either NABERSNZ or the Green Star tools to measure carbon neutrality. All New Zealand buildings have to be carbon-neutral by 2050. Many may want to start soon.

Strong economy and fiscal management

Grant Robertson, Minister of Finance

The fundamentals of the economy are sound, with the best quarterly growth in two years. Unemployment is low, terms of trade are strong and the Government’s books in good shape.

Our economic plan will see this continue while sustaining productive, inclusive growth. A $1 billion investment will incentivise research and development. The Provincial Growth Fund will unlock the potential of our regions, the Green Investment Fund will create jobs, and we are investing in education and training. Record transport investment will boost productivity. 

Warning signs

Amy Adams, National finance spokesperson

While the fundamentals of New Zealand’s economy remain strong, there are numerous warning signs. The lack of business confidence is showing up in our job creation, and our migration numbers which are once more starting to show an exodus of talented kiwis to Australia. Consumer confidence has fallen.

This government has offered little policy to drive economic growth and deliver opportunities.

Auckland: office market will stay strong

Scott Pritchard, chief executive, Precinct Properties

We expect solid economic growth will continue over the next few years. Combined with positive net migration, this should see growth in demand for workers in Auckland city centre, underpinning office demand.

Taking into account the limited new supply, strong demand and impact of stock removals, we don’t see a risk of an oversupply of office accommodation. Even as new supply comes to market over the next two years, current fundamentals will see low vacancy levels prevail and drive solid rental growth.

Christchurch: few capacity constraints

Anna Elphick, general manager, strategy, insight and policy, ChristchurchNZ

After billions spent on infrastructure after the earthquakes, Christchurch has the capacity for economic growth without associated infrastructure costs facing other cities.

With plenty of affordable residential and commercial property, room to expand and limited congestion, Christchurch provides a counterbalance to urban capacity constraints in Auckland and Wellington. The central city is seeing rapid development with retail sales growing 40 percent in the past year.

Wellington: Resilience building gains pace

Victoria Barton-Chapple, Wellington City Council

Two hundred Wellington building owners will need to start work soon on strengthening buildings to meet the Government's seven-and-a-half year deadline.

These buildings are either strategic in importance; in high traffic areas; or along routes where emergency vehicles will require access. The new framework will increase the pace of resilience building and closer match it to massive investments being made in roads, pipes and cables.

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