Report | Intelligent Investment

New Zealand Market Outlook 2024

Less uncertainty, and tentative improvement

March 25, 2024 6 Minute Read

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Key Points:

 

  • The New Zealand commercial market is close to the top of the current yield cycle, although we expect selling pressure on some vendors to intensify in the coming months.  Average Prime yields are forecast to fall from their cyclical peak of 6.80% in mid-2024 to 6.40% in December 2025.  Based on interest rate forecasts, this also implies yield to 2-year swap rate margins expanding from 175 bps to 280 bps. 
  • Investor allocations to real estate will increase, with the current market seen as a good time to buy for those in a position to do so.  Investors see the market as having had a reasonable price adjustment with more motivated sellers.  This provides a window of buying opportunity over the next six to nine months.  Investor sentiment remains the most robust towards industrial but is improving for the retail and hotel sectors.  Residential built-to-sell and student accommodation are also gaining more attention, complementing the already strong interest in built-to-rent.
  • Debt markets remain challenging but lending appetite is improving.  Opportunistic non-banks will increase lending, albeit cautiously and with expectations of higher returns.
  • Expansionary demand remains a feature of the occupier market but to a lesser degree than in the past two years. Sentiment in the retail occupier space is ahead leading office and industrial, however large scale expansion will remain limited as retailers prioritise consolidating resources and focusing on the most profitable locations.
  • Office occupiers are pursuing real estate strategies in support of new workplace requirements.  This will continue to manifest in a general flight to quality trend, although, in 2024, cost conscious occupiers will be more focused on restructuring leases and optimising current premises to be fit for purpose in the hybrid working era.