WHAT TRENDS ARE CHANGING THE MARKET AND FOUR TIPS FOR BUYING COMMERCIAL PROPERTY THIS YEAR
2020 was an eventful year, to say the least. But while we’ll always remember it for the multiple unprecedented moments, many of the shifts and changes in the property market last year did not come out of the blue and they’re not going away in 2021, either.
Trends such as flexible offices, retailers shifting their needs in response to online shopping, and an imbalance of supply and demand had already begun long before COVID-19 hit. What we saw last year was a rapid ramping up of these trends in response to COVID, intensifying their effects on the market.
Several of these trends are now here to stay, at least for the near future, as businesses settle into new rhythms of working and commercial property owners adapt in response.
Sarah le Grove, a Commercial Property Valuer from TelferYoung’s Hamilton office, has her finger on the pulse of the commercial property market across the Waikato. She’s noticed several trends and changes in the market over the past 12 months that will continue to affect commercial property values going forward.
Although her speciality region is the Waikato, much of what Sarah has noticed rings true across other parts of New Zealand too. If you want to know more about the specifics of your region, get in touch with one of our local valuers near you.
If you’re planning to buy, sell, or lease commercial property in New Zealand this year, here’s what you need to know.
1. GENERAL TRENDS ACROSS ALL COMMERCIAL PROPERTY TYPES
If there’s one overarching trend across all property types in New Zealand, it’s that there’s an imbalance of supply and demand. This has been widely noted in the residential market by multiple media sources, but it’s also true in the commercial market.
“It’s a reaction to people having money, now we’re not travelling, and wanting to put it somewhere to invest. There is a strong demand for quality investment assets as people believe that they will get a better return on their money from property when comparing it to a term deposit from the bank. On the other hand, this is also a defining factor in why there is a hesitation to sell, and therefore there is limited stock coming to the market.” - Sarah le Grove, TelferYoung
Directly after the first lockdown in 2020, there was a pause in activity in the rental market while businesses played a cautious ‘wait and see’ approach, rather than locking into new leases.
This didn’t last long, however, and by the end of 2020 leasing was ramping up again. Moving forward, we expect to see growth in commercial leasing activity as a result of pent up demand from previous inactivity, as well as businesses regaining confidence. The longer we’re free of lockdowns or community cases, the more confidence our businesses will have, but keep in mind that any change in alert levels will have the opposite effect.
2. INDUSTRIAL PROPERTY TRENDS IN 2021
“The primary trend for industrial property around the Waikato is that there’s a shortage of supply and very strong demand, particularly for good quality industrial premises.” - Sarah le Grove, TelferYoung
Driven by a lack of supply of industrial land, there is still not enough industrial property to meet demand around the Waikato for both occupiers and investors. For sellers, this means strong buyer competition for good quality assets.
Last year we continued to see an increase in new industrial leases for retailers, who are looking for bigger warehousing spaces to hold stock. With the sudden boom in online shopping, retailers are looking for larger floor spaces in industrial premises where they can hold stock that will be sold directly online.
Moving forward this year, we expect to see further confidence from retailers desiring warehouse space and a continuation of the supply and demand imbalance for industrial properties.
3. RETAIL PROPERTY TRENDS IN 2021
In an inverse reflection of the industrial property lease market, there is an ongoing trend in some cases of retailers looking for smaller shop floors to balance out their larger warehousing premises.
The effects of online shopping were already impacting retail property leasing pre-COVID, but as the pandemic forced retailers and customers to go online-only for several weeks last year, eCommerce reached new heights in New Zealand.
“New Zealanders as a whole had previously not been hugely supportive of online shopping - many customers had never shopped online before, and a number of businesses didn’t have an online element at all. Since 2020’s first lockdown, many of these retailers have now established themselves online and found a dual offering including a physical store and an online presence to be more effective for their business moving forward..” - Sarah le Grove, TelferYoung
As a result, the requirements for retail stores have shifted - smaller shops are more in demand, and retail premises overall are becoming smaller.
“Their needs are different - they don’t want to hold on to as much stock, or would rather keep it in a warehouse elsewhere. Rather than paying a higher price for retail space, it’s more cost-effective to keep extra stock in a warehouse and move it around as needed”. - Sarah le Grove, TelferYoung
A subset of the retail property market, suburban convenience retail (small blocks of retail shops close to residential developments) shows no signs of slowing down this year.
Around Waikato in the past 12 months, several developments have been fully leased prior to completion, with some leased prior to work even beginning on the development. These premises are popular and dependable and will continue to see popularity through 2021.
4. OFFICE PREMISES TRENDS IN 2021
You may imagine that lockdown and the ensuing work from home (WFH) trend has killed the traditional office premises - but that’s not entirely true.
Office premises are still popular around the country, but the way they’re used is changing. Notably, even as a number of large corporates announced they are wanting to reduce floor size throughout New Zealand, the Hamilton market has barely been affected with only a very limited increase in vacancy levels post lockdown. There is however a trend toward increased flexibility not just in office spaces that can be adapted for a new way of working and to accommodate teams that may rotate between home and the office throughout the week, but also in more flexible leasing arrangements.
Coworking spaces are growing in popularity to meet this demand, offering desk space, small offices, and meeting rooms that can be hired out by the day, week, or month. This reduces some of the pressure and risk for small businesses, as they aren’t locked into a long lease or large office in the event of another lockdown.
5. HOSPITALITY & TOURISM PROPERTY TRENDS FOR 2021
Despite the industrial, retail, and office property sectors appearing to be relatively unscathed by the ongoing impacts of the pandemic, hospitality and tourism properties remain enormously affected.
“Moving forward, hospitality and tourism properties will continue to see the most uncertainty and will be perceived to be higher risk than other properties. They’re the most at risk and most affected by any further lockdowns, as well as the ongoing lack of overseas tourists.” - Sarah le Grove, TelferYoung
4 TIPS FOR BUYING COMMERCIAL PROPERTY IN 2021
If you’re planning on buying commercial property in New Zealand in 2021, there are four things you can do to make the process smoother:
Be proactive. Because of the high demand, you have to be active in looking for properties, engaging agents, and completing your due diligence in a timely manner.
Don’t fall into the FOMO trap (Fear Of Missing Out). When you’ve missed out on a good investment, then missed another, and another, it can be tempting to leap at the next thing that comes along without doing your due diligence, or paying more than you are comfortable with. When this happens, you’re more likely to take on greater risks.
Stick to what you know. If you have been investing in a particular type of property such as industrial or retail, don’t buy a specialised property without understanding what you’re getting into. No matter the market, you still have to do your research and get expert advice from professionals you trust.
Get expert advice. Whether you’re buying or selling, TelferYoung is here to help - we provide professional, independent advice so you can make an informed decision that’s right for you. We’ll help you understand everything you need to know about the value and potential of a property so you can make the right step forward.
Professional advice can make an enormous difference in your purchasing decisions, allowing you to buy with confidence, knowing you’re paying the right amount for your new property, and fully understanding both the upside potential and the risks associated with the investment.
The commercial property market in New Zealand is hot, and will continue to be so while demand outstrips supply across the country. If you’re thinking of buying, selling, or leasing this year, get in touch with TelferYoung to make sure you’re getting maximum value out of your premises.