Investor confidence dives
Demand for commercial property from tenants and investors has stalled as Covid-19 locks down most sectors of the economy, a new report says.
The RICS New Zealand Commercial Property Monitor Q1 2020 survey revealed a sharp decline in confidence in the commercial property sector.
It contrasts with a survey only four months earlier in December 2019 when confidence among commercial property owners was at a three-year high.
Market momentum measured by the Occupier Sentiment Index and Investment Sentiment Index reversed sharply in early 2020, falling to minus 19 and minus 11 respectively in Q1, the RICS report said.
Both indicators were still not as negative as they were during the Global Financial Crisis (GFC), it said.
Investment and foreign investment inquiries declined steeply, as did tenant demand.
RICS Australasia senior economist, Sean Ellison, said the survey found rents and capital values were expected to continue their steep decline over the next three months.
The pullback in rents and capital values for retail properties was expected to be more severe than those for industrial and office properties. ‘‘Prime office and industrial properties are expected to be more resilient than retail, with prime office seeing little change in rental and capital values.’’
In New Zealand, prime office rents were expected to fall only slightly, by 0.6 per cent, in the next 12 months. Prime industrial rents were expected to rise slightly, by 0.4 per cent.
However, prime retail rents were expected to decline by 5.1 per cent in the next 12 months and secondary retail rents to decline by 9 per cent.
The property values of prime office and prime industrial were expected to rise slightly in the next 12 months but the picture was not as rosy for retail and secondary office properties.
Prime retail property was expected to decline in value by 2.8 per cent, secondary retail to fall by 1.2 per cent, and secondary office by 3.8 per cent.
‘‘There has been a steep decline in the optimism of commercial property professionals in New Zealand,’’ RICS Australasia managing director, Chris Nicholl, said.
‘‘However while sentiment is certainly taking a hit, the reaction does not appear to be as severe as it was during the depths of the GFC.’’
The survey results indicated occupiers and investors were maintaining a sort of ‘‘holding pattern’’ in Q1, given the uncertain length of the coronavirus lockdowns.
The Government’s recent announcement it would provide interest-free loans for a year to small businesses impacted by Covid-19 through the Small Business Cashflow Loan Scheme would provide immediate support for many businesses to meet their cashflow needs, Nicholl said.
‘‘However, the commercial property sector is not out of trouble yet.
‘‘There must be continued support for the sector and continued collaboration between landlords and tenants post Covid-19.’’