What New Zealand’s commercial property sector should expect in 2017

What New Zealand’s commercial property sector should expect in 2017

Total Property - Issue 7 2016

New Zealand’s continued economic strength, underpinned by political stability and increased business confidence, will bolster the country’s commercial and industrial property market in 2017.

Instability in other parts of the world will further raise New Zealand’s profile over the next 12 months and underscore the region’s reputation as a safe haven.

Interest rates in New Zealand have been at low levels for a long time and property yields continue to follow them down. It’s a good bet the country will remain in an abnormally low interest rate environment over the next 12 months, and much beyond.

Driving growth in 2017 will be strong construction activity, population growth, and a supportive monetary policy.

The business and financial community’s confidence in the economy should keep conditions in the CBD office market strong, encouraging developers to push ahead with major projects. Expect leasing activity to build on this year’s high levels and tenant demand for high-quality space to surge on the back of new developments in Auckland, Wellington and Christchurch.

2017 should ease difficulties for those looking for suitable properties to buy or invest in. Building activity is already ramping up in Auckland, and there is a considerable pipeline of new office developments in the central city, which will create about 70,000m2 of new space and generate sizeable amount of activity in the sector.

Occupancy rates are up, which has steadily pushed up rents. However, it is unlikely the development pipeline will dampen purchaser demand enough in the near future to have a downward effect on rental prices, and tenants will have to look at smarter ways of occupying space.

Quality office space will be the priority for tenants heading into 2017. Some landlords of existing spaces will be able to meet the demand for improved workplace environments better than others.

Forecasts for the New Zealand tourism sector are also extremely positive, with international visitor numbers expected to rise from 3.3 million to 4.5 million by 2022.

This will increase demand for new hotels, such as those already in the pipeline in Queenstown and Auckland, and further drive retail development activity around the country’s airports.

The potential game-changer for Wellington in 2017 will be the decision on the $300 million airport runway extension. The plan will allow for increased international air traffic, and is seen by many as vital to driving growth in the capital.

Although the overall picture for New Zealand is positive, challenges will present themselves further down the road.

The Christchurch rebuild will be winding down in 2017, which will be a drag on growth, and rising household debt against property will eventually reach a natural limit. Retailers and consumer service businesses could find themselves at risk as households focus their efforts on repaying debt.

2017 is also an election year. Although the date of general election has not yet been set, polls show the National Party well ahead of Labour.

It’s the predictability and stability of New Zealand political scene that should give stakeholders in the commercial property market, and wider economy, more confidence to go out and plan for the future.

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