The Post

Golden property run over

- Marta Steeman marta.steeman@stuff.co.nz

The commercial property market is in for a soft landing rather than a crash, real estate service firm CBRE have reassured developers and investors.

It is one of the key messages at an annual conference in Auckland CBRE is giving to about 200 players in the commercial real estate market.

Total returns, from rental income and capital gain, would decline, CBRE said, after several years of strong growth.

‘‘Some people are wondering is there a crash coming. Our view is a crash is not coming,’’ head of research in New Zealand for CBRE, Zoltan Moricz, told Stuff ahead of the conference.

The commercial property downturn would not be as bad as the GFC (Global Financial Crisis) when people lost money.

‘‘So our view is that it is a relatively soft landing, there is no recession,’’ he said.

Nervous commercial property investors have been asking when the commercial property market would run out of steam, what was likely to happen in the next few years and how the cycle would end. A property cycle was typically seven years but this property cycle had lasted more than ten years.

One of the local factors which would restrain rental growth was new retail property and office supply coming through, CBRE said.

Interest rates and bond rates would rise a bit from 2020 making borrowing more expensive.

Moricz said CBRE’s global view was that some of the issues that had emerged like Brexit and US-China trade tensions were likely to resolved.

The results might not be entirely positive but the result would not be a bad as some might think, Moricz said.

Other economic issues that had unsettled internatio­nal sharemarke­ts were being remedied to some extent by greater fiscal stimulus in China and Europe.

In New Zealand, total returns would ‘‘pull back from what we have seen during the peak of the cycle but they won’t go into negative territory.

A decent amount of shopping centre supply was coming through, like the expansion of Sylvia Park and Westfield Newmarket in Auckland, and new CBD office supply. Rental growth in those sectors would be ‘‘negatively impacted’’.

‘‘That’s what drives the bottom of the cycle around 2020-21.’’

‘‘But to bring it into a broader context we still think that compared to the GFC when total returns went into negative territory for a couple of years, this time around they will remain positive,’’ Moricz said.

Dr Henry Chin, head of research in Asia Pacific, Europe, the Middle East and Africa for CBRE, said the same questions about the end of the cycle were being asked around the world which was in the longest economic expansion cycle in the past 40 to 50 years.

Low interest rates were prolonging the cycle and geopolitic­al issues were not major factors likely to drag on that.

For some clients it was time to take profits but CBRE was advising clients to focus more on new opportunit­ies they see developing in the data and logistics sectors.

Chin said strong rental growth was coming to an end and so was ‘‘strong cap rate compressio­n ‘‘, a measure of the profitabil­ity and return on an investment.

But New Zealand was still very attractive to global investors who had been buying prime commercial property here even as the property sector faced a downturn.

New Zealand was regarded as a defensive investment, a mature property market where the difference between the property return and the cost of borrowing was attractive, Chin said. It was one of the few markets in the world that offered that.

And large global investors had about US$80 billion for commercial real estate investment and were looking for defensive investment­s to keep achieving returns.

Moricz said global investment­s funds and superannua­tion schemes had made a lot of money and needed to invest that somewhere.

Even private investors questioned whether they should sell and asked how deep the downturn might be.

They thought they might be able to ride through it because even at the bottom of the cycle they would get positive returns.

The opportunit­ies to buy properties were few and far between. Premium grade commercial property sales in the Auckland CBD were once every few years.

 ??  ?? The $223 million expansion at Sylvia Park, Auckland, will add more retail space in the city and slow retail rental growth, CBRE said.
The $223 million expansion at Sylvia Park, Auckland, will add more retail space in the city and slow retail rental growth, CBRE said.
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