Low interest rates, government stimulus spending, border restrictions and a Covid-19 vaccine are among the key influences likely to shape New Zealand’s commercial property market over the coming year.
That’s according to Colliers International’s latest monthly research report, which provides 21 predictions for 2021.
Chris Dibble, Colliers’ National Director of Partnerships, Research and Communications, says there are positive economic signs on the horizon.
“Interest rates are likely to remain low as the Reserve Bank and government continue to prioritise protection of employment and expansion of the economy.
“While the latest economic data has reduced the likelihood of further reductions in the OCR, a high New Zealand dollar impacting inflation and large-scale quantitative easing are likely to continue to place downward pressure on interest rates throughout 2021.
“An additional significant tailwind for the economy will be provided by massive fiscal stimulus as the government rolls out its infrastructure programme, boosting employment and strengthening occupier fundamentals.”
But Dibble adds that the long shadow of Covid-19 will continue to be felt.
“Border restrictions will continue to be a drag on the economy, particularly in regions heavily reliant upon international tourism.
“The shortage of skilled workers will also persist until such time as border restrictions are fully relaxed. This could increase project timelines and place further upward pressure on build costs.
“However, as international vaccination programmes gather pace, an easing of border restrictions will become increasingly feasible particularly towards the end of 2021 and into 2022.
“More people visiting and spending will strengthen property sector fundamentals. The success which New Zealand has had in controlling the Covid-19 pandemic will further enhance New Zealand’s already strong perception as a safe haven.
“A greater ability to visit New Zealand and thereby physically inspect properties will see increased international interest in local property investment assets.”
In the industrial sector, Covid-19 has accelerated trends evident prior to the pandemic, which will continue into 2021.
“Greater adoption of online shopping options has driven an increased requirement for logistics facilities. Cold chain delivery is an expanding sub-sector driven by a number of factors such as the surge in online grocery shopping.
“In addition, the roll out of vaccines, many of which need to be stored in climatically controlled conditions, could see demand from pharmaceutical companies grow in 2021.”
A rise in the integration of technology within industrial premises will become increasingly apparent over 2021 and 2022 as businesses look to maximise space efficiency.
Ongoing demand for new industrial premises and a shortage of suitably zoned land will see further upward pressure on land values, particularly within established precincts.
In the office sector, 2021 is likely to see a greater number of employees returning to the office.
“While companies will continue to allow a degree of flexibility, they will likely promote a return to the office as the advantages inherent in working from the office versus the limitations of working from home become increasingly apparent.”
Dibble says an increase in leasing options will emerge as corporates complete their post-Covid ‘right-sizing’ assessments.
“Space may be released to the market via sublease offerings or upon lease expiries. In both cases, lessors will need to meet market requirements in terms of fit-out and size. This may result in large floorplates being divided into a number of smaller units.”
Dibble says there is also likely to be growth in flexible workspace options as co-working and serviced office operators take the opportunity to lease space in prime offices where opportunities have previously been limited.
“Larger office owners will increasingly opt to offer their own flex facilities either in competition with established operators or in partnership with them via a profit-sharing model.”
In the retail sector, pre-Covid trends such as online retailing will continue to be a driving force in 2021.
“Retailers that are not equipped for a more online world are likely to struggle in the future retail landscape.
“Retail services such as supermarkets, which were classed as an essential service, will remain a popular sub-sector of the retail property sector.”
“Lease agreement conditions and rental payments will remain a significant focus for landlords and tenants moving forward.”
“In some retail precincts where there is excess supply, rents are at a discount, but there is a tendency for hard ratchets to be incorporated in two to three years’ time when conditions for retailers are forecast to be improved.”
Colliers’ property market predictions are an annual tradition. To read the rest of the 2021 predictions – including the residential, hotels and rural and agribusiness markets – visit www.colliers.co.nz/research.