Our No.1 industry

Our No.1 industry

Total Property - Issue 5 2017

Property is a trillion dollar industry that makes a big contribution to New Zealand’s prosperity.

By John Church, Bayleys National Director Commercial

A recently released report commissioned by the Property Council has reinforced just how important the property sector is to the New Zealand economy.

The report, undertaken by economic consultancy Urban Economics, shows that property has overtaken manufacturing as New Zealand’s largest single industry, with a direct contribution to GDP of $29.8 billion (13 percent of total GDP) in the March 2016 year.

This represents the difference between the cost of inputs (labour, materials, etc.) and the value of outputs (dwellings, real estate services, etc.) – in other words, the real value added to the economy by the property sector.

The property industry grew by $11.7 billion over the 2007-2016 period, more than double the growth of any other industry – tipping manufacturing off its perch as the country’s biggest contributor to GDP and also putting it ahead of other big sectors such as healthcare, tourism and agriculture.

The industry is also our fourth largest employer and growing fast, with 160,800 people – or one in 12 workers – in property related jobs. The bulk of these property jobs are in construction and related architectural, engineering and technical services, with 9,800 employed in real estate services.

While the construction sector creates the buildings that we live, work and relax in, the real estate sector has an important role to play in maximizing the value of those property assets.

Well executed property sales and leases release funds for further development and property acquisitions and make a significant contribution to our country’s prosperity.

The report, titled Economic Significance of Property to the New Zealand Economy, estimates that every dollar contributed to GDP by the property sector results in an additional $1.80 in flow-on economic impacts. This comes from the purchasing of goods and services from other industries (such as building materials) and from employees of the property industry and its supplier industries spending their wages. On this basis, in addition to its direct contribution to GDP of $29.8 billion in the March 2016 year, the property industry had a flow-on impact of $53.7 billion providing a very substantial total contribution of $83.4 billion to GDP. And this doesn’t include capital gains from the appreciation of land and building values.

Given its economic significance and substantial growth over the past decade, the property industry deserves to be given more focus within our education system. It still struggles for recognition at a university level despite the passionate advocacy of Professor Deborah Levy, head of Auckland University’s Department of Property, whose trail blazing work for the sector was appropriately recognised with a lifetime achievement award at this year’s RCIS awards. More work could also be done at our secondary schools to promote the property sector as a serious career option worthy of students’ consideration.

The Urban Economics report puts the value of residential and commercial building stock at $489 billion, more than triple the value of shares and bonds on the New Zealand stock market at $136 billion. If you add in land values, then the total value of buildings and the land they sit on in New Zealand is in excess of $1 trillion ($1036.8 billion).

While residential property comprises the bulk of that trillion dollar figure, commercial property accounts for a still sizeable $171 billion. Urban Economics’ figures are based on latest council valuations which as we know tend to be below the actual market value of commercial properties.

In terms of a sector breakdown, $63.7 billion or 37 percent of the $171 billion total is industrial property, followed by retail (18 percent), office (14 percent), hotel and leisure (six percent) with “other” types of commercial property accounting for $44 billion or 25 percent.

It is this latter category that is receiving increasing attention from investors as our article on alternative investments in this issue illustrates. Bayleys’ international affiliate Cushman & Wakefield points to changing social and demographic trends that are heightening interest in non-traditional asset investment classes.

These include student accommodation, retirement and healthcare facilities, data centres, self-storage complexes and car parks. These are also all growing segments of the New Zealand commercial property market which along with other emerging industries, such as childcare centres and food and beverage, are increasingly on the radar of investors in this country.

We are already halfway through 2017 with a lower level of commercial sales activity evident due to a significant shift in the credit lending criteria required within the commercial banking sector, across all major banks. Bayleys, however, has maintained an excellent clearance rate in our commercial auction rooms across the country and good quality, competitively priced property is still highly sought after from those buyers able to access appropriate finance.

Given New Zealand’s strong economic outlook, with a continuation of low interest rates also forecast, buyers can invest with confidence. This, our fifth Total Property portfolio for the year, contains a wide selection of offerings from around the country. We look forward to being of assistance.

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