Let’s get regional
Total Property - Issue 2 2018
Where to invest next? It’s the question that most influences the thinking of commercial and industrial property markets the world over.
In New Zealand, investors have tended to focus on the Golden Triangle of Auckland, Tauranga and Hamilton – the country’s economic engine room – as well as Wellington, Christchurch and Queenstown, but opportunities are beginning to present themselves in the regions.
The Government has made Regional Economic Development Minister Shane Jones has been given $1 billion a year to fire up the regions’ economies, and with infrastructure projects looming large in his spending plans, the outlook is looking favourable for commercial and industrial sectors in previously overlooked or ignored markets.
The first regions to benefit from Mr Jones’s Provincial Growth Fund, to the tune of $61 million but equating to $344 million once private sector investment is factored in, are Northland, East Coast, Hawke's Bay, Manawatu-Whanganui and the West Coast of the South Island.
The projects, which Mr Jones says will create more than 700 new jobs, include:
• NORTHLAND: $17 million for two cultural centres in Opononi and Whangarei; $9 million to upgrade the Waipapa Intersection on SH 10 near Kerikeri; $2.3 million for a new tourism hub in Kawakawa; and $450,000 for a totara industry pilot to explore new forestry market.
• GISBORNE and HAWKE'S BAY: $9.2 million for tourism and forestry, including $5 million to reopen the Wairoa-Napier line for logging trains, which the Government estimates will take 5,700 trucks off the road; $2.3 million for the redevelopment of Gisborne Inner Harbour; $1 million for a project to mark the first encounter of Maori and Europeans; and $60,000 for the following tourism projects - the Mount Hikurangi experience, Chardonnay Express, and Waka Hourua Tairawhiti.
• WHANGANUI: $3 million for upgrades to the Whanganui line for locomotives carrying exports; and $3 million for the revitalisation of Whanganui Port.
• WEST COAST: $1 million for further development of the Great Rides cycle trails; $350,000 towards a waste-to-energy plant in Buller; and $100,000 for future planning for tourism in Punakaiki.
In addition, Mr Jones has earmarked $750,000 for feasibility studies into rail in Kawerau, Southland and New Plymouth and announced a working group on trucking and rail in the upper North Island, which would investigate the future of the Ports of Auckland and whether Northport was a possible replacement.
There is also likely to be a closer investigation of a commuter rail link between Tauranga, Hamilton and Auckland.
Mr Jones has said the criteria for future funding will include an assessment on whether a project boosts productivity, adds jobs, uses Maori assets, and mitigates climate change. It will also have to add value, rather than duplicate work already happening and must have support from local groups.
Regional and government officials will oversee smaller-scale projects of less than $1 million, while Cabinet approval will be needed for major infrastructure projects and any worth more than $20 million.
For the commercial property sector, the fund is an opportunity to invest in regional markets that have huge untapped potential for growth. Major infrastructure projects will undoubtedly attract the attention of big investors and developers but their proven ability to drive economic activity will create opportunities for smaller players, too.
ASB economist Nick Tuffley says the Government is likely to concentrate its investment efforts on improving infrastructure and driving growth.
Although economic growth is likely to be weighted towards the upper parts of the North Island, Mr Tuffley says: “There is a positive outlook for most provincial areas targeted by the Government’s funding programme and that positivity impacts on incomes and flows through to support services, which will need commercial property.
“These service areas are growing faster, and the commercial property sector is still playing catch-up which will hold construction up to a high level. There will be greater need for industrial buildings for logistics and storage and to a lesser degree for manufacturing.”
Property Council head of advocacy Matt Paterson agrees. “New businesses will need commercial property from which to operate. Knowing the Government plans and what types of businesses will be enabled by the Government will help the property sector plan to provide appropriate buildings necessary for businesses to thrive,” he says.
The Government’s open attitude to greater decentralisation of government departments and agencies is also a positive sign for regional commercial property markets. NZEIR principal economist Christina Leung says it’s a move that should create jobs and contribute to regional economic development.
Property Institute of New Zealand chief executive Ashley Church believes growth kickstarted by the Government will spread across all sectors of the property market.
“There will be growth in demand for housing which impacts all service sectors, pushing up farm prices, though tourism is not such a logical link. There are a whole lot of infrastructure issues there.”
He adds: “Tauranga and Hamilton have done well because of their proximity to Auckland, and Auckland is growing primarily because of migration. For migrants, I think it comes down to opportunity. There are opportunities in the Bay of Plenty and in the Waikato and indeed further south.
“I think if we were having this conversation in 10 years’ time, you might find that that success story has continued further south to Taranaki, potentially Hawke's Bay and even Manawatu. All of those areas are growing. Traditionally, their economies were areas built on the back of horticulture and viticulture and agriculture, but now their economies are diversifying in the same way that Tauranga did 20 years ago.”
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