Experts’ gung-ho crystal ball readings
Colin Taylor asks commercial property leaders for their opinions about prospects for the 2019 market
Mike Bayley
Managing director,
Bayley Corporation Ltd
The flow of investment funds into the commercial property market, which reached unprecedented levels in
2018, is likely to gather even more momentum in 2019.
This will be led by continuing diversification out of the residential market, particularly in Auckland where the housing market is likely to remain fairly flat for the next few years. At the high-value end of the commercial property market, the big influx of foreign capital in 2018 is likely to be just the tip of the iceberg. When the world’s largest real estate private equity investment firm, Blackstone Group, outlays NZ$636 million to acquire a portfolio of office buildings in the Viaduct (being managed by Bayleys Property Services) the rest of the globe takes notice – and generally follows suit. Expect more big investments from the likes of Blackstone, Invesco and SC Capital in
2019.
While we’re a small market, New Zealand offers global investors a safe harbour in an increasingly turbulent world. Enhancing connections and exposure to international markets will therefore be a major focus in
2019. In this regard, Bayleys acquisition last year of Knight Frank’s New Zealand business operations, and our strategic international alliance with them, will provide additional global profile for our clients.
Regulatory restrictions will continue to constrain the amount of funding our main Australian owned banks can allocate to commercial property. However, we expect at least one offshore-based non-bank commercial property lending entity to establish itself in New Zealand this year. This will open up more funding options for the development sector in particular.
The investments funds and syndication market should continue to flourish and offer an increasingly diverse range of products such as Augusta’s tourism property fund and potentially a residential focused fund later in 2019.
Mark Synnott
CEO,
Colliers International NZ
The rise of flexible co-working, new streams of non-bank lending, and the emergence of build-to-rent are among the key trends expected to shape the New Zealand commercial property market in 2019.
The market has well and truly bounced back after a post-election slump in late 2017 and early 2018. On the back of this uptick in activity, we anticipate another exceptional year of growth in 2019. The ongoing lowinterest rate environment and sustained offshore investor interest will underpin this growth.
The flexible co-working sector looks set to continue its meteoric rise. The sector has doubled in the past three years and our forecasts show it will double again within the next five. The main constraints are low levels of vacancy and high levels of rental growth in the office sector, reducing available options.
Non-bank lending is likely to become more prevalent as developers seek alternative funding models. At the same time, margins for builders are likely to grow due to consolidation in the construction sector. Development conditions will make speculative builds more attractive, particularly in the office sector. There is already strong demand for spec-build office space, as evidenced by uptake at No 1 Sylvia Park and 10 Madden St in the Wynyard Quarter.
The build-to-rent sector is poised to gain momentum in 2019. This emerging asset class involves the development
of residential properties at scale, to be rented out privately rather than sold to owner-occupiers. The asset class is maturing in the United State and Europe but remains in its infancy in New Zealand. We expect Auckland’s first build-to-rent residential project to launch in 2019, with further development to follow. Non-bank funders and syndicators will be watching these developments closely.
In the wider residential development sector, KiwiBuild will dominate the lower end of the market. However, skills shortages in the construction industry and the greater margins to be made in the commercial sector, will constrain the amount of supply.
The industrial sector looks likely to continue its stellar run. Significant deals last year included the $93m sale to Goodman of Foodstuffs’ distribution centre in Mt Roskill and the $53.75m sale to Augusta of the Castle Rock Business Park in Christchurch. These were the largest-ever industrial transactions in the North and South Islands respectively.
Scarce land supply, low vacancy, and rising rents will continue to attract investors, with syndicators and listed property companies remaining active at the top of the market.
In the office sector, strong uptake of prime new supply will contribute to growth in the secondary sector. This is good news for landlords, but local investors will find it hard to compete against offshore buyers at the top end of the market. Invesco’s recent purchase of a 50 per cent share off Precinct of the ANZ Centre in Auckland for $181m highlights the continued levels of offshore interest in New Zealand office assets.
Retail’s transformation will continue in 2019, with some 179,380sq m of new supply expected in Auckland over the next few years, including significant shopping centre expansions at Scentre Group’s Westfield Newmarket and Kiwi Property’s Sylvia Park. The new retail precinct at Commercial Bay will consolidate the shift of Auckland CBD’s epicentre towards the waterfront and the western CBD fringe.
Hotel supply in Auckland looks set to finally catch up with demand. Revenue in the sector will remain strong due to continued tourism growth and an anticipated spike in demand during the America’s Cup and APEC conference in 2021.
Outside of Auckland, the regions are likely to continue booming. The residential and commercial markets in Hawke’s Bay and Wanaka in particular have undergone tremendous growth over the last two years, which will continue as populations grow. Growth in the other two “Golden Triangle” centres of Hamilton and Tauranga will also remain strong.
John Urlich
Commercial manager, Barfoot & Thompson
There has rarely been a year that has seen us looking more globally for clues than this one.
The economic outlook is now well signalled and a necessary easing of global stock markets is required and due. Clearly, it will pay to be cautious this year, but we believe the property sector will make for continued good investment.
It’s been said that, “nobody wins a trade war”, and the effects of US policy will be felt globally, not least of which will be China. This uncertainty will continue to affect the over-bought sharemarket and some necessary correction will ensue. Despite this, we are optimistic we will see a relatively “soft landing”.
Central banks are growth sensitive and the recent tightening of monetary policy will afford them room to move — and move they will. We are confident any potential slowdown will be managed.
All of this has only one immediate consequence on our commercial property market: investment