Confidence in commercial property reaches sky high

by Roxanne Libatique12 Feb 2020

Confidence in commercial property continues to increase – even hitting its highest levels since 2017, according to the latest survey of local industry professionals.

The Royal Institution of Chartered Surveyors (RICS) and the Property Council New Zealand (PCNZ) New Zealand Commercial Property Monitor, which covered the last quarter of 2019, revealed that the sector had been buoyed by an increase in investment demand driven by domestic and foreign investors.

“There has been a very encouraging shift in the mood of the market, with the share of respondents who saw the market in a downturn phase declining from 44% in Q3 2019 to 23% in Q4 2019,” Michelle Manley, country manager for New Zealand at RICS, told Landlords.co.nz. “This is a significant decrease and bodes extremely well for the sector as we begin the new decade.”

She expects North Island’s commercial property to outperform South Island – with the former’s headline rental and capital values being expected to increase between2.5% and 3%. In contrast, the values of the latter were expected to increase to only 0% to 1%.

Read more: Investors tap into shared ownership of commercial properties

However, Leonie Freeman, chief executive officer of Property Council New Zealand, noted a sharp increase in respondents reporting a deterioration of credit conditions.

“Many respondents are beginning to warn that finance for new developments and business lending is increasingly becoming an issue. Some have seen the main trading banks start to turn the tap off in this sector,” she said. “While it is too early to say definitively, this does create a genuine risk that we may start to see restrictions in the building of new commercial stock.”

Jane Turners, senior economist at ASB, added: “There are tentative signs that non-residential construction demand may be starting to slow in areas like shops, restaurants and bars, storage, and farm buildings. However, demand for accommodation-related areas remains strong, with growth still strong in hotels and motels as well as hostels, boarding houses, and prisons.”

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