The Reserve Bank of New Zealand’s pursuit for financial stability and resilience has seen major banks required to increase ‘tier-1’ capital within a seven-year timeframe from 1 July 2020. While we may see a lower or stable OCR in 2020, interest rate margins are likely to rise as well as term deposit rates. This may see more properties come to market as owners look to take advantage of the strong gains made in recent years.
As is typical in an election year, there will be a period of disruption before and after the 2020 election here and in the US as people absorb the political promises and the eventual outcomes. Those focussed on long-term performance will benefit the most.
The New Zealand Government’s announcement to take advantage of low lending rates and increase infrastructure spending will likely boost economic activity in 2020 and provide further support for high employment rates. This will enhance occupier fundamentals.
The property industry will benefit from measuring the sustainability and societal impacts of the sector through environmental, social and governance initiatives. As is apparent abroad, investigation and implementation of recommendations from the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures could also feature.
The convergence in tenants nationally searching for higher quality, more flexible, productive, well priced and environmentally sustainable premises will grow. Many main cities will need more supply, but construction sector complexities and constraints highlight only a handful of companies with big balance sheets may be able to provide the right solutions.
There is little currently forecast that could interrupt the current positive path in rental growth and solid sales activity in the office sector in 2020. The biggest hurdles the sector is likely to face in 2020 are rising operating costs and suitable stock for investors to purchase.
Industrial vacancy is at, near or approaching lows in Auckland, Wellington and Christchurch. Many locations regionally also face similar constraints. This will likely result in an increase in the demand for land and the continuation of new-build construction. The markets that have delivery constraints and can’t cater to demand within a suitable timeframe is where the greatest level of price growth will eventuate.
The industrial sector’s resilience in the hard times and strong performance in the good times is why it is a favoured asset class for many investors globally. Rental growth and firm yields for prime property are likely to continue in 2020. This will lead to a resurgence in investor appetite for secondary premises where greater financial rewards could eventuate in 2020.
2020 will likely see a growing divide between the ‘haves’ and the ‘have nots’ as customers become increasingly selective in their spending. Flagship shopping centres, large format retail, and easily accessible, centralised destination strip retail will remain popular amongst consumers and continue to report positive metrics for owners. Others will find conditions testing.
Data and technological advancements will play an important role in retail next year. There will be a rise in capturing customer data to provide greater levels of personalisation and improving the customer journey. Further, if a 5G network is successfully implemented in 2020, it would lead to a number of new initiatives to explore. These include more immersive customer experiences, stock and delivery efficiencies and a smoother transition between online and offline purchasing.
Many of NZ’s key markets remain at or near record performance levels in 2019, with further growth anticipated in 2020, albeit at more modest levels than seen in recent years. Growth will come from increasing international visitor arrivals, forecast to reach 4 million by the end of 2020, robust domestic demand and sustainable new supply/inventory coming to market. 15. The Auckland hotel market which is experiencing increasing levels of new supply, fewer marquee events and another deferment in the NZICC opening, has had a fall in both occupancy and room rates in 2019 with a moderate improvement anticipated in 2020. However, a resurgence in 2021 is expected due to an array of events including the 36th Americas Cup, APEC and many World Cup sporting fixtures.
Momentum in sales activity is anticipated to improve in 2020, as a number of hotel owners look to divest assets to take advantage of buoyant trading conditions and a strong appetite from investors to place capital into this asset class. Low interest rates and strong returns are likely to sharpen yields in 2020.
By Chas Gunarathne