How the commercial property market has fared over the last year and the trends and forces emerging in 2021 was the focus of the latest CBRE New Zealand Market Outlook: Restart the Uneven Recovery.
The line-up of CBRE presenters discussed key changes that have taken place in the market and a number of highlights as we move forward into 2021.
The future of commercial property is looking bright
If the GDP forecast for 2021 meets the predicted 4-5% economic growth levels, then the rose-tinted glasses may become a reality for the commercial property sector.
Strong liquidity and low interest rates have compressed yields over the past six months especially for the industrial sector. While industrial is seeing the biggest increase in investor demand, there are also good opportunities in office and retail which is not so fully or aggressively priced as industrial.
Retail property sales, particularly in large format retail, have remained strong overall since COVID-19, due to evolving retail spending trends. CBRE expects retail operations to converge into a single model known as Phygital — physical and digital — involving the unification of e-commerce and bricks-and-mortar stores to cater to consumer demand for convenience, speed and cost.
A trio of influences will impact on office vacancy in the short-medium term: structural workplace shifts, economic growth, and supply. Many of the overseas remote working trends do not apply the same way or extent in New Zealand. Cultural factors and our lockdown experience indicate that the future of office is stronger in New Zealand than the global norm.
Liquid New Zealand property market highlights depth of dry powder
The second half of 2020 saw the strong investment market in New Zealand continue. Key trends of note are:
Continued asset price growth across the main markets and total $20+ million transaction volumes of $2.9 billion: consistent with the past six years, but with a strong industrial and office skew.
2020 reverted to a historic local-offshore investor balance, largely influenced by border closures:
- Locally listed entities were most active and competitive
- Offshore investors remain active and interested, awaiting reopening borders. Meaningful bid volumes came from property fund managers, mostly via Singapore and Sydney.
- Of CBRE-managed transactions, 36% were from offshore buyers – who only concluded 25% of deals, unable to demonstrate acquisition conviction from afar.
$1+ billion in long-lease deals in 2020 indicates strong and deep capital market appetite. We have local appetite to sustain historic volumes and even firm up prices, with an expectation that we will outperform global competition for capital. Investment yields are now well in the 4%s and may even threaten 3%s considering long-lease transactions.
For the rest of 2021, we expect to see strong bidding continue and international capital appetite improve due to the prospects of borders reopening.
The future of work is a work in progress
New Zealand occupiers are in a better position than the majority of our global counterparts, with a good deal of normality in our day-to-day office life.
The next 12+ months will likely reshape the future of workplace within New Zealand, refocusing - and at times accelerating - how changes are adapted and implemented. Key highlights include:
Understanding the importance of blending people, technology and property is key
- The changes in workstyles have seen the thoughtful integration of all three of these factors, which should attract and retain greater talent, and make the workspace a greater attraction
- A focus on defining and measuring workplace and employee performance will likely see a shift to output drivers to measure overall success. KPIs will be tangible and measurable to ensure they are fulfilling their output expectations.
The need to stop and take stock
- Businesses that are taking time to reassess their work needs and use data to understand how their workspace is being utilised will perform over coming years.
An effective hybrid approach is needed to avoid disadvantaging those working from home
- The importance of training and engaging those working remotely to ensure they stay connected to the culture of an organisation is essential
- Technology will play a critical role to ensure capacity can cope with the higher demand, bridging the gap of mixed presence collaboration.