In the last Colliers monthly report of 2022 we provided provide some of our top predictions for the following year and below are the 12 that relate to commercial property on a national scale.
These are not our only projections on the large, complex and ever shifting dynamics of the property sector, so make sure to reach out to get the most relevant and up-to-date advice. Many of the predictions and observations in a Hawke’s Bay context also ring true, and I have covered off these below.
The economy –
1. The RBNZ and economists pick that the peak in the cash rate is getting closer to tackling inflation, but it is still a few months away. While still some opaqueness on timing remains, greater clarity in the ultimate cost of finance is emerging following the latest RBNZ guidance of the OCR peaking at 5.5% in 2023.
2. While challenges lie ahead, the economy will benefit from the boost in demand provided by an increase in the number of overseas tourists, students and workers, facilitated by the reopening of the border and from an easing in supply chain constraints.
Hawke’s Bay has been one of the better performing regions over the last couple of years thanks to our food production sectors, strong retail trade and plenty of local and central government infrastucture projects. We hope apple growers and other food producers aren’t impacted by poor harvest weather, getting high yield crops followed by good export market returns.
3. Record levels of consent issuance point towards some relief for occupiers searching for space, albeit that vacancy rates will remain low by historic standards.
4. Tight market conditions and an inflationary backdrop will see rental levels continue to rise at an elevated pace. Limits, though, will be tested by the ability of businesses to pass on costs to their customers.
5. Owner occupation will become increasingly attractive to businesses looking to insulate themselves from rising rental costs, which will underpin sales activity as investors adopt a more cautious approach given the increasing cost of debt. Industrial land is becoming scarce in Hawke’s Bay. The two major industrial zones of Irongate and Omahu are close to capacity and new land development areas will become more difficult to release due to new National Policy Standards to protect fertile growing land.
6. ESG considerations will become increasingly influential when decisions on office occupation are made. Both governmental, led by government mandates, and corporate occupiers, who are setting their own targets, are looking to limit their environmental impact as we transition to a net carbon zero future.
7. Businesses are likely to provide less remote working flexibility for new and existing employees, but the war for talent will continue. This will add further impetus to leasing demand for well-located, high-grade office space designed for maximum staff engagement, collaboration, innovation and socialisation.
8. While prime grade assets will remain the favoured investment option, a broadening of investor interest will arise as greater clarity on the cost of debt emerges. This will allow a more accurate assessment of the fair value of individual assets based upon the risks and opportunities which they possess. As a result, value add opportunities will become increasingly attractive.
There is no A and little B Grade quality commercial office space across Hastings, Napier and Havelock North. This is a significant issue as Hawke’s Bay continues to be a popular place to establish a business while many local businesses have also grown, requiring more office space. The impact on this will also be felt by tenants as record square metre rates are set. 101 East in Hastings is now at 100% occupancy with Colliers brokering three major lease deals with Westpac, Ask Your Team and Hawke’s Bay Business Hub.
9. The trend towards mixing experience with product will accelerate as property owners look to broaden the appeal of centres and attract a wider range of consumers to visit more often and stay for longer.
10. Retailers will continue to face operational challenges next year likely resulting in fewer expansion plans and strong discussions during lease negotiations with new and existing landlords. Retail located in prime catchments with a strong omni-channel offering and providing an experience rich in-store offering will continue to remain popular amongst customers, and likely the most profitable.
11. Off-market activity will rise as buyers and sellers negotiate on new benchmark values being formed as a result of new transactions and valuation evidence.
Hastings has undergone a significant makeover with a clear mergence of a hospitality precinct, east of the railway lines and a retail precinct, west of the railway lines. It has attracted some key new businesses into the city, many of which have been brokered by Colliers such as Chemist Warehouse, & Australian retailer Nick Scali. Napier has seen recent retail movements with BNZ relocating as well as Number One Shoe Warehouse both securing new premises on Hastings Street.