The underlying industry confidence remains positive
Central Otago is a well-established wine growing region that has built a reputation for producing high quality Pinot Noir. This reputation, combined with strong distribution channels, has consistently allowed Pinot Noir grape prices to be the highest in New Zealand, with growth in demand from local and international markets. The export success has given rise to a heightened level of corporate and investor activity in the market.
The total area of vineyards in the Central Otago region is 2,024 hectares or 5% of the national producing area. The average vineyard size in this region is 9 hectares, and the main grape varieties grown are Pinot Noir and Pinot Gris.
Previous viticulture research:
Marlborough Viticulture Market Update | February 2021
Marlborough and Central Otago Viticulture Market Update | August 2020
There is strong demand for horticultural land in Central Otago with competing interest from growers seeking to develop cherry orchards. While some vineyard development is also occurring, this is at relatively low levels. The increased demand for other horticultural crops is one factor contributing to competition for resources such as water, accommodation, and particularly, labour for many vineyard tasks.
The underlying industry confidence remains positive with strong grower and winery relationships at present. However, the industry continues to face challenges including labour shortages, increased operating expenses, climate change, biosecurity, and uncertainty due to the Covid-19 pandemic.
Recent changes to the Overseas Investment Office (OIO) rules have extended the timeframe from three years to ten years before leases to foreign owned entities require OIO approval. This may result in greater demand to lease vineyards and potential increases in rental values.
There have been several vineyard sales throughout Central Otago recently, indicating an active market. Some of these sales are smaller scale vineyards, which are heavily influenced by the activity in Otago's lifestyle property market. These smaller vineyard owners often depend on leasing, which continues to provide a good option for ongoing return without carrying additional risk and the opportunity to bank on capital appreciation later. Leasing is increasingly part of succession planning for many vineyard owners in the region.
We expect grape prices to increase for the coming vintage on the back of a shortage of supply, in line with other regions that are struggling to keep up with demand. Some of the smaller wineries have been impacted by the decline of hospitality and cellar door trade in New Zealand and this is expected to continue with tourist numbers unlikely to recover in the short-term, however, domestic tourism has filled this gap to some extent.
More rural property research from the Rural Valuation team:
Canterbury dairy support and arable market update | September 2021
Southland dairy property market update | August 2021
New Zealand forestry market update | August 2021
Kiwifruit market update | May 2021