Colliers leader: new optimism in 2024 market
Prospective purchasers and vendors have continued to move closer in their price expectations during the past six months, which could contribute to enhanced activity in the property market this year.
Gareth Fraser, CEO of Colliers New Zealand, says following the slowdown experienced in 2022 and 2023 the signs are pointing towards increased sales volumes in the coming months.
“The stabilisation of interest rates, while no longer at the unprecedented lows of 2021, have provided investors with a clearer direction for the year ahead and they can now forecast accordingly,” Fraser says.
“We saw bursts of transactions in late 2023 and it has been encouraging to see those expectations beginning to align between vendors and purchasers.
“While there is the possibility of a further increase to the Official Cash Rate, there is consistency with interest rates and many banks are predicting no further increases.”
Fraser says this provides fertile ground for buyers who will have the opportunity to make strategic purchases.
A change in government late last year contributed to renewed optimism in the property sector. The new Government has signalled its intention intent to change the brightline test from 10 years to two and restore mortgage interest deductibility.
This could encourage residential investor activity, Fraser suggests.
A housing shortage remains in many areas of New Zealand and record-setting immigration numbers to round out 2023 will put further pressure on rental rates.
Data from Stats NZ released in December noted there was a net migration gain of 128,900 in the year to October, the highest figure recorded for an annual period. “From a residential development perspective, to help meet this demand land that is already zoned for residential use will be highly sought-after,” Fraser says.
“We also believe construction costs may be beginning to level out following extensive rises in recent years. In part this is due to a slower development pipeline forecast for the second and third quarters of this year, creating greater competition for projects.”
Fraser says one other angle to monitor from the new Government will be around how its desire to reduce the public service headcount could have an impact on the office market.
Public and private sector businesses throughout New Zealand are continuing to examine the right balance for their team members with hybrid work models remaining popular among employees.
Prime grade office space in New Zealand’s major centres continues to experience strong occupancy figures and vacancy rates are among some of the lowest across the main global cities. “These low vacancy rates have put upward pressure on rental rates and are pushing demand into higher-quality B-grade space,” Fraser says.
“Pockets of Auckland’s CBD, such as Wynyard Quarter and Viaduct Harbour, have a vacancy rate below 1 per cent for prime floorspace, while the CBD fringe in Wellington has a prime vacancy rate of only 1.8 per cent.”
Providing a desirable office environment for team members continues to remain front of mind for many organisations and this feeds into their ESG commitments, he says.
“These commitments will continue to shape the workforce and cause businesses to think about their contributions to a lower carbon future.
“Sustainability is a key pillar for how many businesses operate and they are constantly exploring new ways to promote and champion sustainable business practices.”
Fraser says while the retail sector has experienced challenges of late due to increased household expenses in an inflationary environment, the outlet shopping development at Auckland Airport called Ma¯nawa Bay, which Colliers is leasing, will provide this sector with a boost.
“From a transactional point of view, retail assets drew strong investor interest in 2023 with our Capital Markets team selling a number of notable properties in this space.
“Assets that have further valueadd potential remain attractive and that will likely continue this year.”
In the rural market, Fraser says while transactional activity has declined over the past 18 months due to the current economic environment, the dairy sector is supported by strong market fundamentals and a good domestic buyer pool.
“The value of well-located, environmentally compliant dairy farms with good quality infrastructure is likely to remain resilient, even in the face of a period of impeded cashflow. Farms entering the market with a well-defined and assured approach to land use consents, winter grazing areas, compliant effluent systems, dependable irrigation water sources, and a grasp of nutrient responsibilities will maximise the potential for achieving premium sale prices.”