Winners, losers and in between
Justin Kean predicts what property investors can expect under the new Government.
As the dust settles on the coalition agreement and policies are revealed, it is probably about this point that it finally becomes sensible to start discussing – what this all might mean to the commercial property market.
In particular, it is worth discussing which sectors can expect to be winners over the next three years and which sectors can expect to be the losers.
Commercial office – Winner, especially if you own one in Wellington
In looking at historical trends it is fair to say centre-left governments grow the government payroll, and centre-right governments tend to shrink it or keep it flat. National in its nine years in the Beehive saw total public service employees grow from 45,934 in 2008 to 47,570 in 2016, reflecting a relatively static office market in the capital.
This miserly growth rate of 0.4 per cent per annum is well below the 52.9 per cent growth seen in the previous Labour-led government when office values boomed.
I am betting that the plans to expand the Government under the current coalition are likely to be a boon for the owners of commercial office space – both in Wellington as well as in other major centres.
In this sector, however, watch out for the increasing importance of green buildings and regulations relating to energy use.
The sector will need to become more efficient and be able to measure that efficiency in order to attract government tenants.
Retail investors – Neither here nor there
I would expect the owners of retail to benefit from increased sales levels under the new Government. We are likely to see an increase in income transfers (government benefits) which typically tend to end up in the tills of retailers rather than being invested in capital assets or saved.
I would caution, however, that this spend is likely to be at the lower end of the value spectrum. So the Louis Vuitton shop in the high street may not see significant gains from policy changes but The Warehouse probably will.
Industrial landlords – Good if you have anything to do with infrastructure and or rail
The big policy push by this government in relation to infrastructure building is clear. Where industrial landlords have land and or buildings near rail corridors they are likely to see increased demand and an overflow from government investment.
In terms of roading, it is not so clear, Auckland’s East West Link, for example, will likely be mothballed whilst other large road projects will have to give way to rail before being completed.
In short, however, both the construction of and externalities that result from new infrastructure will likely benefit industrial properties in newer modern industrial locations.
Older industrial suburbs with poorer quality stock and poorer access to rail are unlikely to see significant gains.
Provincial building owners – You’ll do well if you are the last man standing
It is often the case in smaller centres that there is a lack of modern commercial property.
If indeed you are the owner of one of the few ‘‘good’’ buildings left in town, the likely increase in demand as a result of regional economic development policies, might have you signing up a government tenant on terms much better than you could have ever imagined under National.
In short, commercial property does well under both centre-right or centre-left governments.
Commercial property is the platform upon which commerce is consummated meaning that, so long as there are dollars flowing around the economy, some of those will end up in the pockets of landlords.
The question which remains is, what impact will this government, the global environment and the wider economic cycle have on the economy in general?
In answering that (in a balanced and non-partisan way) you will have decided the direction of commercial property over the next three years.
❚ Justin Kean is an asset management director for the Wairaka Land Company and a former national head of research at JLL.