New Zealand's economic development has long supported its commercial property market. Office, retail and industrial property have performed strongly, reflecting a global trend: economic growth is revitalising commercial property markets worldwide.
Inflation in New Zealand is currently well controlled. The New Zealand dollar remains relatively strong. The country's major industries—agriculture, construction, services, tourism and manufacturing—are performing well. Signs suggest that the current low official cash rate will persist for some time. Amid this economic activity, commercial property is in short supply in most central areas.
New Zealand commercial property investment appears to be leaving its high-growth years behind.
The property cycle: approaching the peak
The commercial property cycle consists mainly of boom, downturn and recovery phases. The value of the same property changes as the cycle moves through these phases. A clear understanding of the current phase and changes in prices helps investors make more rational decisions.
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Another way to view the commercial property cycle is to imagine the market as a clock. From 12h to 6h, the hour hand moves from top to bottom, representing a period of falling property values. From 6h to 12h, it moves from bottom to top, representing a period of rising property values.
New Zealand's commercial property market is currently moving through the boom phase and approaching the peak of this property cycle. This conclusion is inferred from JLL's commercial property data. The figures show that rental growth has slowed. Changes in credit conditions have pushed rental yields in several sectors down to their lowest point.
Amazon's impact on retail
“Fast-food outlets seem to be everywhere in retail property.” John Church, Bayley's national commercial property director, says major fast-food chains have more than 700 outlets in prime New Zealand locations, most of them leased.
A few years ago, fast-food retail was not considered a priority investment category, but that has changed. Fast food is highly popular in New Zealand, giving fast-food outlets a significant role in commercial property. John Church notes that current market conditions are changing buyers' definitions of good and bad investments.
At least fast food is not something consumers can buy from Amazon.
The impending arrival of the giant online retailer in Oceania is unsettling the retail industry. There is talk in the market that competition with Amazon's pace of expansion and prices could shrink Oceania's retail sector, particularly in small markets such as New Zealand.
Internationally, online shopping has already affected traditional physical stores. In its global market perspective report for August 2017, JLL notes that the retail market has undergone enormous change. Online sales, omnichannel retailing and technological innovation are all developing rapidly. Store closures in the United States indicate worrying investment performance for traditional physical retail.
“While these changes present challenges, they also offer retailers and shopping centre owners an opportunity to reposition themselves and strengthen the branding of their offerings. Retailers continue to seek quality space that provides consumers with convenience and an appealing experience.”