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What’s in store for next year
Monday, 12 December 2022
Colliers International, one of the biggest global real estate companies operating in New Zealand, has provided some top predictions for next year on the large, complex and shifting dynamics of the residential and commercial property sectors.
Residential
Sales activity will remain subdued as property values continue to adjust from the artificial highs of 2021. A new value base emerge in the latter part of next year, or early 2024. This will begin the transition to the next phase of the traditional property cycle encouraging increased participation in the market from both vendors and buyers.
While amendment of the Resource Management Act (RMA) is underway it will be a long-term project and in unlikely to have a significant impact on development in 2023.
Government policies aimed at promoting intensification however, particularly the National Policy Statement on Urban Design (NPS-UD) and the Medium Density Residential Standards (MDRS), will see multi-unit development becoming increasingly influential, especially within the country’s tier 1 cities. Product design and typology mix, however, must be market led rather than being dictated by development margins and feasibility processes
Increasing government support for the build-to-rent sector will promote it further. Developers and investors with long-term patient capital with financial and social aspirations will continue to remain the most active.
Office
Environment, social and corporate governance (ESG) considerations will become increasingly influential when decisions on office occupation are made. Both governmental, led by government mandates, and corporate owner-occupiers and tenants, who are setting their own targets, are looking to limit their environmental impact as New Zealand transitions to a net carbon zero future.
Businesses are likely to provide less remote working flexibility for new and existing employees, but the war for talent will continue. This will add further impetus to leasing demand for well-located, high-grade office space designed for maximum staff engagement, collaboration, innovation and socialisation.
While prime grade assets will remain the favoured investment option, a broadening of investor interest will arise as greater clarity on the cost of debt emerges. This will allow a more accurate assessment of the fair value of individual assets based upon the risks and opportunities which they possess. As a result, value add opportunities will become increasingly attractive.
Retail
International luxury brands will increase their presence in the country’s tourism centres following the reopening of the borders.
The trend towards mixing experience with product will accelerate as property owners look to broaden the appeal of centres and attract a wider range of consumers to visit more often and stay for longer.
Retailers will continue to face operational challenges next year likely resulting in fewer expansion plans and strong discussions during lease negotiations with new and existing landlords. Retail located in prime catchments with a strong omni-channel offering and providing a rich in-store experience will continue to remain popular amongst customers, and likely the most profitable.
Off-market activity will rise as buyers and sellers negotiate on new benchmark values being formed as a result of new transactions and valuation evidence.
Hotels
A strong increase in international visitors coupled with exceptionally strong room rates, will see hotel revenue per room (RevPAR) rebound to pre-COVID levels by the end of next year for many key regions. Despite strong demand, some key operational challenges particularly labour shortages and increasing operating costs will continue to place ongoing pressure on some businesses/assets.
The rising cost of capital will be directly transferred to higher investment yield expectations across all hotel property, with prime or value add assets being the least impacted. Nevertheless, going concern assets will continue to attract strategic well-informed investors looking for sustainable revenue growth and attractive investment returns as the wider tourism sector continues its recovery cycle.
Rural
Environmental considerations and the impact of government policy in relation to the Emissions Trading Scheme (ETS) and incorporation of He Waka Eke Noa (HWEN) will influence the assessment of the value of traditional breeding country.
Interest in land which offers synergies between arable, pastoral, dairy and forestry farming classes, however, will continue to elicit strong demand.
The prospect of a sustained period of high dairy prices following a potential record payout in the 2022/23 season will bolster demand for dairy farm assets despite the impact of rising interest rates.
The relaxation of Overseas Investment Office (OIO) rules in relation to leases to foreign entities will see increased leasing activity and upward pressure on rentals. Export market success is underpinning increased demand from the corporate and investor sectors.
Increasing carbon prices (currently fluctuating between $85-89) will strongly underpin demand for forestry land across the country, particularly within remote locations.
