5 pressing questions for the market
A common optician term to label “sharp vision”, 2020 couldn’t have been further from the case.
We opened the year with strong momentum from an active market in 2019 and a positive outlook for the months ahead.
However, when the pandemic made its presence known, the commercial property market plunged into uncertainty. The market was left reeling only to then race back up the other side with a flurry of sales and investments that have left some sectors stronger than ever.
A number of question marks still remain though, with significant opportunities for those that act to answer them.
1. What does remote working mean for the office?
One thing is clear from the great workfrom-home experiment of 2020 – greater flexibility is here to stay.
Flexible working became popular for a number of reasons, including a shorter commute, less corporate travel, and the idea of working ‘when it suits you’. On the other side of the coin though, people have made it clear that they like the office for collaborating, innovating, and communicating with their colleagues – particularly younger staff who need support from their management.
Either option on its own is not the panacea for satisfying all working needs and styles, so there is a clear opportunity in the market for modern offices that are designed to meet these new working patterns.
Technologies like artificial intelligence, the Internet of Things, augmented reality, and ultra-fast connections are the key enablers of this transformation that will also make a positive contribution to climate change management through behaviour change and reducing the need to travel.
2. Where are investors setting their sights?
Industrial and logistics assets, already one of the hottest sectors in recent years, benefitted from the boom in e-commerce following what looks to be a permanent shift in consumer shopping habits.
Following a period of caution, we’ve seen growing confidence in prime office assets within our largest cities as well as a shift toward sectors that became increasingly important during the health crisis. While there are still some challenges in the office and retail leasing sectors, greater confidence in the economic growth trajectory will lead to an improvement in enquiry and activity.
This includes data centres buoyed by the shift online, the ongoing digitisation of the economy, and also the local regulatory changes which is forcing large New Zealand-based international companies to house their data on-shore.
Furthermore, our global network shows that offshore capital sources will be an active buyer cohort in 2021. New Zealand is a beneficiary of two major investment themes – higher allocations to real estate assets and a portfolio re-weighting towards Australasia due to its strong COVID response.
The likelihood that international borders will remain closed for much of 2021 will present a barrier to investment. However, a number of offshore capital sources have Australian and New Zealand-based investment professionals or relationships with local managers and are able to overcome the barrier of physical inspection.
3. How will the developer market help alleviate the housing crisis? Momentum is building for Build to Rent in New Zealand, a logical step to adding more volume and diversity into our narrow housing markets that could help aid the housing crisis.
Both international and local developers and investors are becoming increasingly interested in providing Build to Rent schemes to the New Zealand market, especially so in light of lessons learnt during the global pandemic of 2020 regarding the comparative resilience of the residential asset class to economic shocks.
Despite this, government support to help kickstart the sector is essential as the current legislative and tax situation underpinning the sector’s potential is not optimal and will need changes to maximise the opportunity.
4. Will corporate sustainability efforts continue apace?
When money gets tight, initiatives supporting the environment can be among the first to get side-lined. But despite this, companies and investors are expected to stay the course. Not only for our future, but also because it makes fiscal sense.
Our global research shows that in real estate, assets with high ESG (environmental, social and corporate governance) ratings can attain a 33 percent rental premium over comparable non-green certified buildings.
The long-term cost of not acting now, both environmental and financial, should provide sufficient catalyst for the transition not just to more energy-efficient buildings, but a more sustainable sector.
5. Will urbanisation stall?
Cities are the engines of civilisation. Despite occupying only 3% of the world’s landmass, more than half of the world’s population live in them, generating 80% of global GDP.
In New Zealand, it’s no secret that many typical city dwellers have been embracing the remote working model to move out to our many beautiful beaches. However, while the pandemic struck at the heart of what cities are all about, we expect urbanisation to continue and this will only accelerate once the borders are open. Real estate will continue to play a key role in knitting together successful and emerging innovation hotspots, driven by technology.
A lot of the innovations that we've seen in the tech sector are starting to permeate more into how cities in New Zealand operate. The power of data is already making waves in our cities and it will only increase, making the next decade an exciting time to be in real estate.