Property forecast: clouds gather
Commercial property conditions in New Zealand remain relatively upbeat despite increasing external risks of a market downturn, according to a market survey by the Royal Institution of Chartered Surveyors (RICS).
RICS’ Q3 2019 New Zealand commercial property report is a comprehensive guide to trends in investment and occupier markets.
Industry professionals compare market conditions over the last three months with the previous quarter and deliver an outlook for the coming 12 months.
The latest results show occupier and investment sentiment indices (composite measures capturing overall market momentum) have continued in the same positive territory since the beginning of 2018, indicating a persistent expansion.
However, the report also found signs this expansion may be beginning to fade, driven by factors such as a pessimistic revision to global economic growth by the IMF.
Senior RICS economist Sean Ellison says the overall positive assessment is evident in the outlook for commercial rents and capital values, with both expected to continue to increase over the next quarter. As in previous quarters, office and industrial properties are expected to outperform retail.
“While the ongoing growth we have seen since the start of 2018 is great news for the New Zealand commercial property market, there are signs that the current expansion is beginning to wane.
“For the first time since 2012, the available space to rent increased at a quicker pace than those looking to occupy it.
“However, when breaking this down it becomes clear that not all components of the commercial property market are being impacted equally.
“The report shows changes in demand and supply across the office sector were evenly matched in the third quarter of 2019, while demand for industrial space rose faster than supply. Finally, demand to rent retail space fell, alongside an increase in availability.”
Several respondents noted the Reserve Bank’s decision to cut interest rates by 50 basis points in August was helping to drive demand for property.
The report highlights:
- Rents and capital values are expected to increase through to Q4 2020.
Office and industrial properties are expected to outperform retail.
- The Q3 2019 New Zealand commercial property monitor indicates the local market is performing more strongly than Australia across all recorded measures, with Auckland outperforming Melbourne and Sydney.
- Easier access to borrowing may be supporting prices and contributing to lower yields.