Market speed bumps

Volatility is the noun of the year in global property circles, with nearly every driver having been chewed up and spat out, with assaults from every market angle.

The world is in flux – economically, geopolitically, and socially – as a global pandemic meets head-on with war, recessionary indicators, climate change impacts and broad uncertainty.

There’s change happening on every front and with the slowing economy in China, and economists in Australia, Europe and the US saying recession is inevitable – it would be arrogant to think that New Zealand could be immune to any fallout.

In the commercial and industrial property market, the brakes have come on hard – and fast.

There’s a significant disconnect between valuations and the market, offshore cautiousness has largely halted transactions above $15 million, interest rate hikes have been aggressive and sales volumes have plummeted.

In many ways, this comes as no real surprise given the bullish nature of the property market with record volumes and values realised from mid-2020 until the start of this financial year.

We’ve been prepping our clients for a market downturn for some time now, as to some extent, New Zealand has been the canary in the global coal mine fiscally.

Our central bank was one of the first in the world to target inflation and price stability with interest rate rises.

Back in February, the cost of debt for commercial investors was hovering around four percent. That’s now leapt to 7.5-eight percent (if they can secure lending) and when you add in a margin of risk, you’re looking at yields, if geared, of around eight-10 percent.

While institutional investors are expected to sit on their hands while downside volatility settles, the weakening New Zealand dollar against other major currencies is creating opportunities for overseas buyers to look for property here.

Real estate is traditionally a good hedge to inflation, but all owners of commercial property will be monitoring bottom lines carefully as we head into 2023.

Given occupier demand and strong market fundamentals, the industrial, logistics and large-format retail sectors will be able to leverage income as an inflationary buffer while we’d expect some returns friction in other sectors.

One thing is very clear – investors and property owners need to partner with people who can guide them through the current muddied waters with some confidence.

Bayleys has weathered property highs and lows for almost half a century, and this year we’ve appointed some superbly-qualified key people to further enhance our service offering.

Attracting such talent is an endorsement of Bayleys’ client base and professional alliances, and the depth and breadth of our reputable brand and culture.

As New Zealand’s largest full-service real estate agency, our clients can use the collective strength of Bayleys to help mitigate risks and optimise returns.

Whether that’s through valuation advice, lease negotiations, building consultancy, or leveraging our global real estate partnership with Knight Frank, and the findings from our insights and data team – we’ll tough it out with you.

We’ve ridden out tough cycles before and we’ll do it again – so partner with us for the ride (and try and avoid the worst of the potholes…)

Download full article (PDF)   

Subscribe to receive the latest commercial news and insights from Bayleys Total Property