Looking forward - New Zealand's commercial property markets in 2018 - article by realestate.co.nz

New Zealand's economy had an excellent 2017, according to the Treasury's most recent economic update.

Commercial real estate
  • 1 March, 2018
  • COMMERCIAL
  • Commercial, property, real estate

Towards the latter half of the year businesses showed continued optimism, displaying positive employment and investment intentions, and population increases bolstered solid GDP growth.

With both global and local economies showing improvement, all signs point to this being another outstanding year for doing business in New Zealand. This strong growth, as well as large-scale infrastructure improvements and several other factors, could give rise to countless lucrative commercial property investment opportunities.

Here's what we're looking forward to for New Zealand's major commercial property markets in 2018.

Prime office space is still in hot demand in Wellington and Auckland.

Auckland's growth bolstered by infrastructure projects

In 2018, the New Zealand commercial property market will continue to provide good opportunity. In Auckland, the City Rail Link and Commercial Bay work will come closer to completion. Investors in the city should look closely, as these developments will strengthen demand in the area around Commercial Bay and along the rail lines when completed.

Office stock is also expected to remain in hot demand. Infometrics data shows that yields are low for commercial property here in Auckland, but that's merely reflective of the low level of risk associated with the investment. Data from realestate.co.nz shows that there was just 56,347 sqm of office space for sale in the city towards the end of 2017 - demonstrating how strong demand is.

The windy city has recently entered its largest ever period of retail property construction. 

Wellington entering a period of prosperity

Wellington is entering a period of impressive growth coming into 2018. Stuff reported that the windy city has recently entered its largest ever period of retail property construction.

Data from realestate.co.nz data shows that there was 38,380 sqm of retail space available in Q3 2017 and by Q4 that number was just 2,025 sqm. The upcoming construction works should boost that number considerably over the next few years providing opportunity for investors.

Office space in Wellington is also seeing huge demand after a much of the stock was damaged in the earthquake creating a supply shortage.

Vacancies in the city are near record lows at just 1%. This demand/supply imbalance could push rents up, boosting yields on office property in the city considerably over 2018.

The Amazon effect

Amazon accounted for almost 53% of online sales growth in the US in 2016, according to Slice Intelligence. The retail company also captured a whopping 43% of all online sales over the holiday period, casting an imposing shadow over all retailers.

In late 2017, Amazon Marketplace launched in Australia, and IBISWorld reports that Amazon plans to dominate the market early - undercutting competitors by 30% on price. The online giant may or may not open a New Zealand equivalent in the near future, however industry analysts forecast commercial property in New Zealand could still be affected.

2018 will be a period of impressive growth in New Zealand's main commercial property markets. In a comment to the New Zealand Herald, it was explained that Amazon's entry could spur retailers to prioritise fulfillment and distribution. This may cause increased demand for industrial real estate in infill locations close to customers and infrastructure.

Investors should look out for such opportunities in main cities like Christchurch, Auckland, Tauranga, Wellington and Hamilton. This increasing demand driven by a changing market could see their values, and asking rents increase rapidly.

LJ Hooker NZ

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