Considering the alternatives
23 Mar 2022
At our recent 2022 New Zealand Real Estate Market Outlook event I looked at the Multifamily/Build-to-Rent sector, which is the fourth major sector globally, along with an introduction to the emerging Alternatives sectors.
Globally focused Alternatives and their place in New Zealand
Our Asia Pacific Investor Intentions Survey demonstrated a sharp increase in interest in alternative sectors, notably in Data Centres and Cold Storage, followed by Life Sciences. The intentions are already translating into active investments. We examine the three most sought after alternative property types in a New Zealand context to see if they hold an opportunity onshore.
Cold Storage: New Zealand is a significant player in the Cold Storage market, with considerable capacity. As expected, this is driven by New Zealand being a major food exporter and thus Cold Storage real estate forms part of the supply chain.
With New Zealand exports growing by an impressive 60% in the past nine years, which is underpinned by growing consumer demand, we believe the cold storage sector holds inherent strong potential in New Zealand.
Data Centres: Data centres have seen a rapid expansion across the Asia Pacific region in recent year, driven by a strong demand from more and more data being generated and needing to be stored. New Zealand is on the map, with hyperscale cloud operators Microsoft Azure and Amazon Web Services both having facilities currently under construction in Auckland.
Structural shifts will drive sustained long term demand growth, both globally and locally. We see that digital transformation will continue to drive data demand growth, and thus the demand for data centres. New Zealand is on the cusp of this sector’s growth.
Life Sciences: The Life Sciences sector is largely driven by big pharmaceutical companies or a large research and development base, which are limited in New Zealand. However, there are some companies onshore that are internationally prominent in the field such as Fisher & Paykel Healthcare and Orion Health. Given the rapid growth of the sector it can open up specific opportunities related to these companies. Overall, as a sector of focus, it seems to hold relatively little promise in a New Zealand context.
Build-to-Rent / Multifamily – an opportunity we need to capitalise on
Key demand drivers are well documented and accepted now, particularly around demographics. Australia has capitalised on this recently. The key reason New Zealand is lagging is that our legislative framework is holding us back with a lack of government action to support the sector. The two primary barriers are the Overseas Investment Act and interest deductibility.
As was necessary in the UK and Australia, the property sector is lobbing the Government to recognise and adapt the current framework to encourage the establishment of the sector in New Zealand. The Government has signalled support over the course of 2021, but we urgently need this to materialise.
Australia and New Zealand started the Build-to-Rent journey around the same time, and it is noteworthy to recognise Australia’s strong performance over the past 18 months, following a similar trajectory to the UK. The Build-to-Rent sector in Australia is reaping the benefits of legislative changes now flowing through – a flow on effect we hope to see in New Zealand this year.
The opportunity within New Zealand for Build-to-Rent is fast emerging with the entry of an increasing number of institutional parties into Build-to-Rent development, an investment which we expect will significantly boost supply.
The lobbying path has been laid, the demographic drivers well evidenced and active capital awaiting – the opportunity is ripe to jump on the Australasian Build-to-Rent acceleration.
Globally focused Alternatives and their place in New Zealand
Our Asia Pacific Investor Intentions Survey demonstrated a sharp increase in interest in alternative sectors, notably in Data Centres and Cold Storage, followed by Life Sciences. The intentions are already translating into active investments. We examine the three most sought after alternative property types in a New Zealand context to see if they hold an opportunity onshore.
Cold Storage: New Zealand is a significant player in the Cold Storage market, with considerable capacity. As expected, this is driven by New Zealand being a major food exporter and thus Cold Storage real estate forms part of the supply chain.
With New Zealand exports growing by an impressive 60% in the past nine years, which is underpinned by growing consumer demand, we believe the cold storage sector holds inherent strong potential in New Zealand.
Data Centres: Data centres have seen a rapid expansion across the Asia Pacific region in recent year, driven by a strong demand from more and more data being generated and needing to be stored. New Zealand is on the map, with hyperscale cloud operators Microsoft Azure and Amazon Web Services both having facilities currently under construction in Auckland.
Structural shifts will drive sustained long term demand growth, both globally and locally. We see that digital transformation will continue to drive data demand growth, and thus the demand for data centres. New Zealand is on the cusp of this sector’s growth.
Life Sciences: The Life Sciences sector is largely driven by big pharmaceutical companies or a large research and development base, which are limited in New Zealand. However, there are some companies onshore that are internationally prominent in the field such as Fisher & Paykel Healthcare and Orion Health. Given the rapid growth of the sector it can open up specific opportunities related to these companies. Overall, as a sector of focus, it seems to hold relatively little promise in a New Zealand context.
Build-to-Rent / Multifamily – an opportunity we need to capitalise on
Key demand drivers are well documented and accepted now, particularly around demographics. Australia has capitalised on this recently. The key reason New Zealand is lagging is that our legislative framework is holding us back with a lack of government action to support the sector. The two primary barriers are the Overseas Investment Act and interest deductibility.
As was necessary in the UK and Australia, the property sector is lobbing the Government to recognise and adapt the current framework to encourage the establishment of the sector in New Zealand. The Government has signalled support over the course of 2021, but we urgently need this to materialise.
Australia and New Zealand started the Build-to-Rent journey around the same time, and it is noteworthy to recognise Australia’s strong performance over the past 18 months, following a similar trajectory to the UK. The Build-to-Rent sector in Australia is reaping the benefits of legislative changes now flowing through – a flow on effect we hope to see in New Zealand this year.
The opportunity within New Zealand for Build-to-Rent is fast emerging with the entry of an increasing number of institutional parties into Build-to-Rent development, an investment which we expect will significantly boost supply.
The lobbying path has been laid, the demographic drivers well evidenced and active capital awaiting – the opportunity is ripe to jump on the Australasian Build-to-Rent acceleration.