Property values ‘ hold up well’ in the CBD
“In many ways Auckland’s CBD i s trailing behind the city fringe. Nonetheless, property values are holding up well with plenty of development and investment under way,” says James Kellow, Director of New Zealand Mortgages & Securities ( NZMS).
The commercial property lender says what has hit the central city hardest is not the economic fall- out from Covid- 19, but the City Rail Link and other major infrastructure projects which have effectively closed off large parts of the CBD.
“Downtown Auckland will bounce back and will continue to reinvent itself. Once, council prohibited people from living there, then it was filled up with international students, backpackers, and Airbnbs. Now we have high- grade apartments and a 5- star Park Hyatt in Wynyard Quarter. Twenty years ago, the bottom of Queen St was littered with $ 2 shops, then in came Gucci and other labels. Change is the only certainty.” Kellow says though the CBD is now congested with orange cones, the America’s Cup at the end of summer will give a boost to the downtown economy. Once the $ 5b rail link is completed in late 2024, Auckland will see development of convenience retail and the likes around the new underground train stations and more residential conversion of 1990’ s commercial offices.
While some observe that 2020 may change work habits forever, with more people working from home, the head of NZMS believes the need for quality commercial office space will not diminish. “Sure, some consultants and some smaller SMEs have exchanged their leases for the kitchen table, but serious businesses can’t do this. They need personal interaction, workplace engagement and sharing of ideas. They’ll keep demanding high- quality, well located office space and developers will keep building it with obsolete buildings repurposed.”
As for commercial property owners and investors abandoning the CBD, that’s not going happen either, according to Kellow. “Where else are they going to put their money? Property asset values continue to increase, and sure, rental yields are now well below 5 per cent, but still considerably higher than bank deposit rates which are now verging on zero. We’re not seeing headlines about big buildings in the city changing ownership, because they’re not for sale.”
“The likes of strata titles are being picked off, but funds and property syndications are struggling to secure significant product in the CBD. They know advertising a good return in the current environment will see ‘ mum and dad’ investors flock to solid ‘ bricks and mortar’ security. But again, there’s just not the stock as property owners don’t want to sell.”