Five factors underpinning the resilience of Christchurch commercial real estate despite Covid-19

15 Nov 2020

By Tim Rookes

The first quarter of 2020 saw the commercial real estate sector start with a strong and positive outlook, with the likes of the Vodafone Headquarters at 213 Tuam Street receiving almost $500 million in bids and a record sale price of $59 million for the city.

Then the Covid-19 pandemic - and national lockdown – hit, and it was hard to predict market momentum as everything simply stopped. However, the rise in activity we’ve seen since then shows the commercial real estate sector remains strong, and there’s plenty of ‘dry powder’ investment capital looking to find a home in our city.

Five factors underpinning this state of affairs are:

  1. As we enter the last quarter of 2020, investors are no longer playing a wait-and-see game: they’re moving forward on investment decisions that had been on hold since the arrival of Covid-19. This could in part be due to the potential move towards a negative interest rate environment: as banks keep driving borrowing rates down, institutional, local and private investors are encouraged to explore the commercial real estate sector and find opportunities to generate value.
  2. With bricks and mortar seen as a preferred diversification strategy in uncertain times, we’re seeing multiple types of buyers maximising their investment opportunities and competing for stock. A strengthening influx of property syndicators, fuelled by mum-and-dad investors who want above-bank returns on their capital, are being joined by first-time investors.
  3. Landlord and tenant relationships were tested during the lockdown. In the majority of instances, proactive landlords were prepared to work with tenants to weather the storm, most seeing this impacting well beyond any lease framework. One of the key learnings for landlords has been a heightened focus on tenant covenant, with the essential service sector now a highly attractive tenant base.
  4. Owner-occupier property investment is on the rise fuelled by the low interest rates and the favourable comparison of mortgage repayment versus rental payments.The banks are willing to lend against a robust business for direct property investment, with the added benefit of future capital gain and improved depreciation benefits.
  5. With Auckland assets trading at sub 5% yields, Christchurch presents excellent value as a city rebuilt to an exceptionally high standard, with abundant investment opportunities - with no greater example than CBRE’s latest record breaking circa-$80m sale of Manawa to an Auckland-based private investor attracted by the IL3 build quality and near-government quality tenant covenant. Industrial property remains the most in-demand sector - a bedrock of the Christchurch market

Though there is caution in these times, there is also confidence, plus a genuine sense of needing to accept a present/future that will potentially include lockdowns border controls. The commercial sector will continue to facilitate and stimulate the economy, creating opportunities for investors who are looking for a growth return as we navigate new ways of investing.