Top 10 property sector predictions for 2016
In no particular order, Colliers International New Zealand have provided their top 10 predictions of what will be the major trends and moves across the property sector this year.
1. Investment demand increases
Post-GFC global economic and financial management by Reserve Bank governors have driven down cash and bond yields, propelling property to the forefront of decision making for 'yield hungry' investors.
The low inflation, low interest rate environment with buoyant business activity has produced a 'snowball effect' on value growth that has picked up speed and will not slow down this year.
2. Politics and planning distract markets and development in Auckland
Politics and property will be reluctant bedfellows in 2016.
Political 'hot potatoes' in the New Year will include Resource Management Act (RMA) reforms, better utilisation of public land, foreign ownership rules, infrastructure provision and further privatisation of state assets.
The Auckland Council elections - providing a new mayor and new council - will coincide with decision-making on the Proposed Auckland unitary plan.
This may affect the provision of cost effective residential and business land for much needed property development activity.
3. Iwi to the fore
Current asset-value growth will encourage greater involvement in the commercial property sector from iwi. This includes well known tribes such as Ngai Tahu, Ngati Whatua Orakei and Tainui, along with others from the 135 iwi in New Zealand.
Commercial property investment for many iwi gathered momentum following Treaty of Waitangi settlements.
They were typically seeking community involvement, long-term returns, portfolio diversification and intergenerational benefits.
4. Industrial's strong run continues
Our global survey of yield rates is an indication of the strong demand and competitive bidding for industrial property throughout New Zealand.
The industrial sector finished 2015 in the strongest shape it has been in for decades.
Industrial was the first sector to emerge from the recovery after the global financial crisis - recently passing its last cyclical peak across many investment indicators.
With vacancy rates at record lows in Auckland, Hamilton, Wellington and Christchurch, tenants will have to adapt to new rental levels this year, but better business conditions will assist. Markets experiencing greater development activity will see a tempering in rent rises.
Robust property fundamentals will boost investor confidence in the sector - a driving factor for even more capital value increases.
5. Demand to continue for retail assets, but buyers selective
Remarkably, the industrial sector's performance will be surpassed by the retail sector in 2016.
A strong finish to 2015 will position the sector at the forefront this year.
Large scale retail asset sales in the North Island - originally brought to market in 2015 - will demonstrate the sector's dominance.
The complexity involved in these transactions slowed down the process, which were originally thought to sell within the 2015 year.
6. Office sector's time to shine
The office sector will break new ground in 2016. Current growth potential for this sector is unprecedented in New Zealand's recent history.
The pent-up demand for prime office space has driven vacancy rates to record lows and triggered a pipeline of developments, which will be largely committed prior to completion.
Tenants who wait won't necessary have many options - the most notable example of this will be in Auckland.
Wellington's transition through government procurement and seismic ratings is now all but complete, paving the way for a new-look 2016.
Christchurch is the exception, but year-by-year the likely magnitude of oversupply diminishes, rekindling the discussion about true market rental rates.
7. Residential focus diverts from Auckland
Last year, there was an increase of about 165 immigrants per day to New Zealand's population, which had significant ramifications on housing availability.
Prices in Auckland exploded and triggered financial stability responses from the Reserve Bank and the government who stepped in with new vendor requirements.
The implications of these new rules and regulations will see investors look further afield, creating an 'Auckland investor effect' on house prices in other regions of New Zealand in 2016 - a feature that is already underway in Waikato and Bay of Plenty.
8. Auckland CBD apartment building to accelerate
Structural inadequacy in Auckland's housing supply will escalate over 2016.
Apartment construction is at a historically strong rate in the CBD, but not nearly enough to house another 30,000 residents projected over the next few decades.
9. Long-term demand for rural property
Lower dairy payouts in the short term will not be enough to cast a shadow over demand for property in the rural and agribusiness sector.
Demand for property in the beef and lamb industry will rise along with prices at the farmgate.
Forestry and horticultural sectors will enjoy their time to bask in drier, more accommodating weather conditions.
Issues around foreign ownership rights, health and safety, the environment, climate and irrigation will not go away.
Benefits will become clearer for the industry from the Trans-Pacific Partnership Agreement (TPPA) - the largest regional trade agreement in history.
10. Hotels continue to boom
New highs in occupancy levels, record growth in room rates and increases in revenue per available room are key features of the hotel sector this year.
Increasing demand and constrained supply will improve bottom-line profitability and compress investment yields.
The rise in sales and 'repricing' of hotel assets that emerged in 2015 will lead to a number of investors testing values in the open market in 2016.