Published 12 March 2006
DTZ NZ Ltd research manager Ian Mitchell maintained a mostly optimistic line when he gave the consultancy’s market outlook for Auckland property during the week. Below are points from his address. Click the thumbnails to open:
The slowdown has been shifted along about 18 months but it’s not all bad news. At the bottom of the cycle you are still looking at growth at about 1.5%.
This is a business-led slowdown, not a consumer-led slowdown. One of the things that’s causing that is the high value of the dollar. We’ve also got a very high current account deficit that is going to peak out at about 9% at the end of this year.
The NZ-US yield gap is getting smaller.
Exports will become more competitive, leading to more growth in the economy.
The downward trend for units under 50mÂ² is a little more pronounced than for houses. Mr Mitchell said apartment values had grown by about 40% since the early 90s. “Housing has significantly outperformed that, and there’s also a growing differential between off-the-plans & secondary market prices.”
He expected new rules & regulations (on minimum sizes & various design requirements) could help underpin future apartment values.
Housing NZ Corp would also underpin the market after entering the cbd apartment sector.
Overall vacancy is down to 10% and total occupied space has risen by 25% in 12 years, from 800,000mÂ² to 1 million mÂ².
Among occupants, banks have headed downward (from 19% of space in 2000 to 8%), while the education sector has grown, with a change in the sector from growth of foreign language schools to growth among locally focused tertiary institutions.
Mr Mitchell said the cbd had an ageing office stock “which doesn’t really meet the requirements of the modern office occupier. We have been through a recent lease expiry hump and there is a growing demand for energy-efficient or green buildings.”
DTZ’s rental forecasts were “on the more pessimistic side at the moment” compared to the outlook of its customers, who are asked their views in an annual survey. “Ours are sitting at about 20% growth over the next 5 years, yours at 25%,” he told his client audience this week.
There’s still positive cbd office demand. We’ll see positive rental growth over the next 5 years.
Mr Mitchell said the level of industrial development was easing, as rents reached levels that encouraged tenants to stay put rather than move to new design:builds with higher rents.
Industrial site coverage ratios had been rising, currently at 60%.
He said industrial property was getting towards the top of its cycle.
Land has been a very good investment: “You need a vacancy rate of 8-10% for the market to operate reasonably efficiently, enabling tenants to move around. At the moment it’s about 5%.
There’s going to be strong upward pressure on rents and there’s going to be increasing pressure on councils to rezone land.
There’s still very strong demand on Queen St and there’s increased churn. Some listings are starting to stick, mainly on the fringe. That’s a change from a short period last year, when we briefly saw key money being paid.
In terms of retail profitability, retailers are saying their levels of sales are flat or lower compared to the previous 6 months. Their input costs have been going up faster than they’ve been able to put prices up.
Mr Mitchell doesn’t expect rents to rise as much in the next year.
There’s still downward pressure on yields. “Yields have continued to track down over the last 12 months, which is not what I would have expected them to do.”
Return & yield outlook
The yield & interest-rate spread with Australia has flattened out. The thing that’s going to outweigh increases in interest rates is excess liquidity and we could conceivably sit at the top of the market for another 1-3 years.
Website: DTZ NZ
Attribution: Research presentation, DTZ graphs, story written by Bob Dey for this website.