Experts’ gung-ho crystal ball readings

sentiment. As we saw last year business confidence is the single business determinant in the demand for real estate.

Our advice to any investor, tenant or occupier is that they must consider the current global ructions against the fundamentals of our property market. And our fundamentals are very good.

We would point to record low vacancy rates across all sectors coupled with an unavailability of development options that makes for a challenging environment for real estate agents. Building will remain costly and the uptake of office space has exceeded predictions. Consequently there is a relative shortage of prime office space available in the next few years.

The refurbishment of secondary buildings will continue to remain a feasible option and overall the outlook for the Auckland CBD and city fringe will remain consistent. Rental levels will grow. The industrial markets are tighter still and the need for greater space continues and will do so going forward. A high proportion of industrial occupiers we survey have suggested that more space would benefit their business immediately.

Retailing remains a science and a cautious approach to both site selection and rental levels remains paramount for tenants and occupiers. That said, consumer confidence remains consistent and the outlook overall remains positive.

The next quarter may prove testing. Some sectors such as hotels, childcare and residential apartments in the city’s periphery are showing signs of increased supply.

But again, overall, we are positive. To place a 2019 twist on an old cliche we believe “fortunes will favour the bold. . . but measured”.

Andrew Stringer

Senior managing director, CBRE NZ

Two highly influential but diverse market factors will push New Zealand property markets into 2019.

First, global capital remains very focused on New Zealand, and Auckland in particular. We anticipate continuing demand from offshore investors, assisted by recent changes to OIO [Overseas Investment Office] thresholds, but with a shift back down

John Urlich

the risk curve.

International capital will continue to dominate major transactions, focusing on highly secure property, moving away from the add-value focus of the past 24 months. High quality, potentially low-yielding assets backed by strong and long leases are in strong demand across all sectors, with a number of dedicated longWALT [Weighted Average Lease Term] funds scoping New Zealand. This is likely to see renewed opportunity for capital recycling through corporate sale and leasebacks.

Secondly, decision making around how businesses will use their premises will continue to see greater levels of intelligence applied across all sectors of the market. Office and industrial occupiers are applying everincreasing knowledge to how they use premises more effectively in order to drive employee engagement and business performance.

Large corporates and SMEs [small and medium-sized enterprises] alike are acutely attuned to the importance of workplace to business performance. Multi-disciplinary advice has never been more important, as occupiers seek to use property to add value. For instance, the co-working phenomenon is now entrenched in our market and major office landlords are embracing it, but leveraging this flexibility requires specialist workplace strategy.

In the industrial sector we’re seeing this theme emerge as the massive increase in infrastructure spend continues to drive location decisions, particularly for manufacturing and distribution.

Andrew Stringer

The improving connectivity of Auckland to the Waikato region will broaden choice for industrial occupiers, but how specific locations will suit businesses will depend on supply chain benefits. Traditional property silos are no more, and sector lines are being blurred, so it will be important to apply multi-disciplinary intelligence in 2019.

Todd Lauchlan

Managing director,

JLL

In a world where global media headlines have been dominated by economic uncertainty throughout 2018, New Zealand’s economy and property investment market has continued to quietly, confidently and purposefully propel itself forward with little fuss or undue self-promotion.

With an official economic growth rate of 3 per cent for the year ended September 2018, New Zealand has outperformed many of its key trading partners around the world and is set to do so again in 2019 — and beyond, according to commentator forecasts. The investment case for New Zealand at a structural level remains strong and robust, and more so if anything.

The benefits of the underlying attractiveness for larger scale investment in New Zealand assets has certainly been demonstrated in recent years. Since 2014, the total market size of $5m-plus deals across all commercial property sectors has averaged $4.6b per annum. By way of comparison, between 2005 and 2013 the average was $1.8b only. On any scale, this represents a huge structural market shift, which cannot be

Todd Lauchlan

explained by underlying inflation alone.

New Zealand is now increasingly on the global investor stage and should be proud to be so. Our transparent market and no stamp duty or capital gains tax obligations are undoubted advantages.

So, what for 2019? Well, we see more of the same — although opportunities are admittedly a little bit tougher to find these days as investors appreciate the true value of what they own. With New Zealand’s economy being so well balanced though, we see scope for strategic investment in office, industrial, residential, alternatives and high-end retail/mixed-use assets (although we are notably concerned for secondary retail space given such dramatic changes in how we shop as a nation these days).

There is a lot still to play for, supported by strong population

Retailing remains a science and a cautious approach to both site selection and rental levels remains paramount for tenants and occupiers. John Urlich Barfoot & Thompson Paddy Callesen

growth forecast for New Zealand, and Auckland in particular, over the next 25 years. There are, of course, challenges ahead and not every property will be a winner. Careful planning and strategy will be crucial (as always) to stay ahead of the curve.

At a more localised level, Auckland’s continuing infrastructural advances are opening up new locations through enhancing accessibility.

In Wellington, geographical constraints on development continue to drive value and promote ingenuity across all property sectors.

In Christchurch, the creation of so much modern space following the devastating earthquake in 2011 will revolutionise how business is done there in future. And across the rest of the South Island, with increased physical and technological connectivity, many more areas are opening up as very real opportunities for investors.

There is no reason why 2019 should not be another good year for property in New Zealand.

Paddy Callesen

Managing director,

Savills Auckland

When forecasting the year ahead, those of us who have been in the market for a long time hope for the best but always assess the risks. There is never any shortage of dark clouds and turbulence in far-off markets. While these markets do affect us, we trade in a local property environment influenced by continued high net migration and population growth, low interest rates, low vacancy rates and non-inflationary economic growth.

John Davies

This leads to demand in all property sectors. In the absence of an economic meltdown, how will these factors shape the Auckland property market in 2019?

Industrial property will be the standout investment category in 2019. Vacancy will remain at record low levels, along with a scarcity of suitable development land and increasing construction costs. Rents will continue to increase across the prime and secondary grades and we also anticipate some further yield compression. CBD office property will continue to attract interest from offshore, with local buyers priced out of the market. Transaction numbers will be subdued as a result of limited available stock. Demand will continue to be less strong for retail centres and suburban office property, with the best transactions reflecting either high-yielding or add-value opportunities. Performance in the housing market will directly affect confidence in the retail property market. Indications of OCR [official cash rate] cuts in 2019 may help residential sentiment to remain steady or possibly improve, despite the recent retraction in Australia. Development opportunities will continue to be dominated by domestic demand, especially in the smaller scale, sub-10ha space. Pricing will be subject to influence from reduced sales volumes and price moderation of completed products. A material influence will be demand from parties seeking to deliver KiwiBuild opportunities.

We also expect to see continued improvement in the availability of credit in 2019, as several of the larger development projects (office and apartment) reach completion.

John Davies

Co-owner director,

Ray White Commercial Auckland

Challenging conditions for apartment developers in central Auckland are resulting in the mixed-use project market softening. Increases in the cost of labour, materials and fees have eroded margins to the point where banks are declining to lend, resulting in developments (especially smallerscale) being suspended or abandoned. This trend is likely to gather momentum in 2019. Larger, betterestablished developers with momentum, scale and cash will fare best.

The trend for residential property investors to move into commercial property will continue. Once the darling of property investors, the residential sector has lost its shine and is now highly regulated with a considerable management burden. Capital growth is no longer a “given” and returns have been eroded to a level that is unacceptable to many. Commercial property offers many attractive characteristics including superior returns, net leases and longer lease terms. These factors will continue to prompt those looking for passive holdings and income to buy commercial property.

Lease lengths are a key consideration for investors and lenders and this will continue, with medium to largescale investors now demanding leases of at least 10 years. Where just a few years ago six-year leases were acceptable, this has now increased, in part due to banks offering better terms on investments with leases of 10 years minimum.

Overall, Auckland’s commercial property market will remain strong over the medium term at least, supported by population growth and a large amount of domestic and overseas capital chasing limited opportunities. Critical to the ongoing strength of the market are population growth, transport and infrastructure development. The lift in land values relating to the Unitary Plan is most likely now behind us.

Future property hotspots will be linked to key infrastructure and access projects including the city rail link, proposed “pedestrianisation” of Queen St, roading improvements and retail centre extensions such as 277 Broadway and Sylvia Park.