Commercial real estate has been a strong performer this year, and the darling of the market is the industrial sector, says Tony Kidd, general manager of NAI Harcourts.
He says undersupply is driving a boost in rental and land values. “Demand for industrial space will increasingly be driven by the growth of online retail and the need for warehousing and distribution facilities.”
He sees this continuing, and yields holding firm as undersupply continues to worsen.
Offices in demand
In the office sector, Kidd predicts that yields will remain low as new supply fails to meet pent-up demand.
“In Auckland, rents will continue to rise from an already strong base in both the CBD and satellite locations, and I predict that overall vacancies will also reduce.”
Shopping centres boom
He says there are big changes happening in retail, with a lot of investment in major new and refurbished retail centres.
“Around $800 million is being invested by Scentre Group into its shopping centre in Newmarket, Auckland.
“These centres are increasingly becoming destination and leisure-type centres with an increasing presence of entertainment and food and beverage outlets.”
Threats from online
Kidd sees online retail sales having an increasing influence in the retail market.
“This type of retailing is already having a major impact in the US and China, through the likes of Amazon and Alibaba. It’s likely that it will play a disrupting role in the New Zealand retail scene, as well as affecting demand for distribution facilities and warehouses.”
Tourism offers opportunities
Kidd says he’s been travelling extensively around New Zealand over the past year-and-a-half.
“I noticed there’s a lack of accommodation of a three to four-star quality, for the domestic and international traveller. At NAI Harcourts, we see this as an opportunity for the astute investor, provided that the fundamentals stack up.”
What can we expect in 2019?
“We see excellent opportunities for long-term investing in the New Zealand commercial property markets,” says Kidd.
“We think the best place to invest right now is the industrial sector; however, owners are holding onto the stock, particularly in the main urban areas.”
So, the future looks rosy, however, he has a warning.
“As we’ve seen in the past, New Zealand isn’t immune to overseas influence and potentially there are events that could have an impact on the New Zealand property market.
“I’d look out for the upcoming general election in Australia, the simmering trade war between China and the US, potential conflict in the Middle East and Crimea, and activity with our main trading partners.”
There are risks involved
While commercial real estate might be currently strong, like any investment, there are risks involved.
Important factors to consider when calculating risk include the property location and market relevance, quality of tenant and lease terms, demand for the space, and the current market and economy.
Yields can also vary, depending on what part of the country you’re in. It’s important to speak to a financial adviser to find out if commercial property is suitable for you and has the risk profile you’re comfortable with.
First published 21 December 2018
Story by Brenda Ward
This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.
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