Christchurch residential property riding a wave of optimism Protecting your bottom line
Springtime in Christchurch always brings a renewed energy, showcasing the natural beauty of our parks, rivers and gardens which are a fantastic asset to our city. As the daylight hours extend, there is a discernible upbeat atmosphere around the city as we take the chance to pause for breath before the pre-Christmas rush.
There is a clear contrast emerging between Christchurch and other New Zealand cities which are grappling with infrastructural challenges. Our city is buzzing with optimism; fuelled by our rebuilt city centre, upcoming spring and summer events, tourism growth and the progression of One NZ Stadium. With population growth, relative house price
stability and demand for CBD property providing further local economic drivers, Christchurch is firmly on track towards an exciting future.
The upcoming cruise ship season and airport passenger movements provide further reason for optimism in our local economy. Christchurch Airport passenger numbers are approaching pre-pandemic levels and the first cruise ship of the 2024/2025 season is due at Lyttelton in mid-October. There is now a recognised shortage of hotel rooms in the city, which will be alleviated somewhat with a handful of hotel developments and proposals in play at the moment. This will give domestic and international
Retail property in Christchurch is showing resilience in the face of challenging consumer spending conditions, with prime CBD and large format retail the stand-out performers. CBRE Research shows rents have increased across several sub-sectors of the retail market, highlighting the strength of retail property fundamentals in high-demand precincts despite the
downturn in household spending.
Prime Christchurch CBD retail rents have shown exceptionally strong growth, due to high tenant demand for space fronting Cashel Mall. Prime CBD face rents increased by an impressive 14% in the second quarter of 2024, compared with the first quarter.
Rents for Christchurch large format retail also increased in the 3.1% to 5.5%
with divestment plans that were put on hold amid the pricing uncertainty of the past couple of years. Investment enquiry levels are also increasing, as the longawaited end of interest rate increases triggers greater numbers of investors keen and ready to buy. Debt markets are becoming more supportive of those making property investment decisions, which is adding weight to the significant investment capital that has been searching for opportunities throughout the downturn.
While it remains to be seen whether these trends will lead to a real uptick in sales volumes, any positivity is to be welcomed in the current environment. There is reason for hope that buyer confidence may prompt sellers to become more market-aligned in their pricing expectations. It is also heartening to see pockets of strong market performance across the city, including prime CBD retail and office property. Significant capital has already begun flowing into the local property market this year, with notable deals such as the sale of the LPC/Move Logistics facility at 32 iPort Drive in Rolleston to Booster KiwiSaver Scheme, demonstrating the attractiveness of quality local assets to national investors.
travellers a much-needed greater choice of options in the central city.
Despite the many reasons for optimism, pressure remains in the local economy and there are significant challenges still to filter through the system at a business level, with investment and expansion plans being put on hold. Positive messaging from the Reserve Bank gives reasons for hope, while the easing interest rate environment should also give more confidence to kickstart business investment over the next 12 to 24 months and help the sector face the challenges ahead.
In the commercial property market, we are seeing more owners progress
range over the year to June 2024.
Caiti Morgan, national director of retail capital markets at CBRE, says this rent growth is notable, given the tough consumer spending conditions over the past few years.
“Consumer spending conditions are highly challenging for most retailers right now. This makes any rent growth a considerable achievement and indicates that retailers are still competing for well located retail space in Christchurch,” she says.
“The latest rental statistics, coupled with vacancy remaining low in prime CBD assets and quality large format centres, demonstrates strong underlying retail property fundamentals and the resilience of our market, despite the difficult trading environment.”
Retail vacancy and new stock Jorge Chang Urrea, research manager at CBRE, says significant competition for available retail space is keeping vacancy down in select locations.
All these factors contribute to the positive feeling of renaissance in our city this spring, which is clearly evident as we look forward to major events including Cup & Show Week, food & wine festivals and music events, including Electric Avenue, which has grown into a nationally-recognised two-day festival. Christchurch property is displaying excellent value compared with most other major centres in New Zealand, while the South Island as a whole is set to benefit from the ongoing tourism recovery and population growth. We look forward to welcoming this increased positivity into the commercial property market as we approach the end of 2024.
“There was no vacancy in prime CBD retail space fronting Cashel and High Streets in the second quarter of 2024, with retailers quickly backfilling any spaces that have become available over the past year due to tenants shifting premises.”
Christchurch large format retail is also under strong tenant demand, with limited space available.
“Low vacancy shows that large format retail occupiers are still trading well in good locations, despite the current economic climate and elevated cost of living which is dampening discretionary spending,” he says.
“Quality large format centres in Christchurch with strong anchor tenants are performing particularly strongly. Northlink is a notable example, having benefited from good large anchor tenants such as Harvey Norman, which is the latest anchor to move into stage three of the development.”
Around 113,000sqm of new retail space is in the pipeline in Christchurch,
Group of women walking between cherry blossom trees. Hagley Park, Christchurch
Tim Rookes, Managing Director at CBRE Christchurch
Christchurch leading the country in the return to office-based working
Christchurch office workers are spending more time in the office than their counterparts in Auckland and Wellington, according to CBRE’s 2024 New Zealand Office Occupier Sentiment Survey.
As the post-Covid hybrid working model (where staff split their time between office-based and remote working) becomes the norm, Christchurch is leading the return to the office nationally.
Responses from 160 professionals representing 18 industry sectors showed that days spent in the office per week are the highest in Christchurch, at 3.8 days, compared with Wellington (3.3 days) and Auckland (3 days).
Across the three main centres, the average office utilisation rate (the percentage of office space occupied during a typical week) is 62% in 2024, up from 59% last year.
much of it in Carter Group’s The Station development in Rolleston; planned to be the largest outdoor shopping centre in the South Island.
Opportunity for investors
Low vacancy, rent increases and current capitalisation rates in prime CBD and large format retail are creating an excellent buying opportunity for investors, says Morgan.
“Quality retail property in Christchurch and New Zealand as a whole has a solid forward outlook, particularly given the improved timeline of interest rate cuts. As a result, we are seeing more investors looking at the sector and several large transactions being completed around the country.”
Retail property sales made up 23% of total commercial property transactions in New Zealand in the first half of 2024, the second most-transacted sector after industrial property (31%), according to CBRE Research.
Further retail assets are expected to be
Mitchell Wallace, Associate Director of Office Leasing at CBRE, says that while the other major centres still have work ahead of them in attracting staff back to the office, Christchurch occupiers have largely succeeded in achieving good office-based working rates. However, hybrid working is clearly here to stay.
“Although nearly two thirds of survey respondents indicated that their current hybrid working practices probably won’t change, it’s widely accepted that spending more days in the office is good for workplace culture, as well as contributing to a more vibrant CBD,” he says.
“With our high quality office stock, excellent CBD amenities and comparatively easy commuting, it’s no surprise that Christchurch is leading the country in terms of office-based working.”
The survey also shows that employers
brought to the market later this year, as owners capitalise on the recent declines in interest rates and the compressed timeline for rate cuts.
Industry fundamentals in New Zealand retail property also stack up well against some markets overseas, where many retail centres are struggling with high vacancy and falling rents, Morgan says.
“Our tight supply of existing welllocated retail property, combined with zoning regulations making it comparatively more difficult to bring a new retail development to market, create a stable retail market in quality centres and precincts here,” she says.
“However, the highly nuanced nature of retail property means engaging a specialist to assist in evaluating investment opportunities is prudent, as some assets are still challenged by capital requirements.”
are adjusting their hybrid working models towards encouraging employees to spend more time working in the office. As well as workplace culture, respondents noted several other benefits of office-based working, including better collaboration and more mentoring & support opportunities.
58% of organisations have made changes to their workplace design as a result of hybrid working, compared with 52% last year, says Wallace.
“Employers are recognising that in order to encourage a more widespread return to the office, providing attractive workplace environments and fostering a great team culture is crucial.
Workplace design has therefore featured prominently in employers’ responses to new ways of working.”
Relocation is another widely pursued strategy, with 39% of organisations nationally planning to relocate their office premises. In contrast, only 12% are planning to stay put and renegotiate their leases.
The most common reason for relocation is to upgrade to better quality offices that will encourage staff to spend more time in the office. Other reasons include seismic and sustainability concerns, as well as being closer to better amenities and public transport. Four out of five respondents say proximity to public transport is a high priority for their office location.
“Geographic location was the top consideration for Christchurch businesses, with 89% of respondents rating it as a priority. This is aligned with the current high demand among tenants for office space in the CBD,” Wallace says.
“It also backs up anecdotal evidence that Christchurch office-based employees like working in the CBD, which is obvious when you consider how much more vibrant and busy our central city retail and office precinct has become in the past few years.”
A net 15% of Christchurch occupiers are also expecting to increase their office footprint over the next two to three
years, indicating a positive outlook for the office market and the city as a whole, he adds.
With hybrid working now standard practice, CBRE is advising occupiers to reassess their workplace strategies to ensure they align with business goals. This includes evaluating how space is used when employees are in the office, says Kirstin Cooper, CBRE Associate Director of Workplace Consulting.
“As businesses transitioned back to the office post-Covid, there was a significant shift towards providing more space for collaboration. It was initially believed that employees would return primarily to connect and work with others. However, four years on it’s clear that space usage is often more complex and while employees do come in for collaboration, their days are not solely focused on it.”
With many businesses indicating a desire to relocate to help in attracting more people to the office, occupiers are advised to engage an office leasing specialist early to assist with any relocation plans, says Wallace.
“Extremely low vacancy in the prime Christchurch CBD office market means it’s important to start searching for new premises at least 12 months before a lease expiry. Even with several new office developments and refurbishments entering the CBD market in the near future, tenants are still advised to act early to secure space now as there is still very high demand and competition in the market.”
Prime office property in the core CBD precinct (roughly bordered by Kilmore, Madras, Lichfield and Durham Streets) has just 0.7% vacancy (as at June 2024). Prime vacancy in the West End precinct is 1.7%, according to CBRE Research.
Caiti Morgan, National Director, CBRE Retail Capital Markets
Jorge Chang Urrea, Research Manager at CBRE Christchurch
Mitchell Wallace, Associate Director of Office Leasing at CBRE Christchurch
Christchurch CBD Aerial
Woolworths Supermarket
Christchurch residential property riding a wave of optimism
The Christchurch residential property market continues to show stability relative to the other main centres, with its resilience through the downturn giving plenty of reason for optimism.
Victoria Murdoch, southern residential valuation manager at CBRE, says the market has now reached its cyclical low point, with factors including interest rate cuts, supply & demand dynamics and government policies all indicating future growth in house prices.
“We really are at the bottom of the market now, and with a second OCR cut expected before Christmas, we will see more optimism and activity in the market leading up to the end of the year.”
Notably, Christchurch is well ahead of Auckland and Wellington in terms of average house price growth over the past year (to August 2024), recording a 4.5% increase. Christchurch also showed relative strength during the previous year, when all three main centres recorded falling values.
“In 2023, we were reporting decreases across the main centres, with Auckland and Wellington recording double figure decreases. Christchurch was much more modest in its reduction and overall continues to be the most stable of the main centres,” she says.
There are a number of factors at
play in Canterbury which influence this stability. Our strong primary industries, tech, professional services, healthcare and construction sectors contribute to a relatively secure employment environment and help provide an affluent buyer base.
Immigration is another positive market driver. While Auckland grapples with a significant drop in international immigration during and after the Covid period, Christchurch is experiencing a positive influence.
“About 20% of new migrants to New Zealand are now coming directly to Christchurch, rather than starting out in Auckland and moving regionally if they encounter difficulties with finding work or housing affordability. This influx boosts our local economy and adds to the demand in our housing market.”
Regulatory changes expected to boost the market
Recent government policy changes are also playing a role in reinvigorating the market. The reduction in the bright-line test from 10 years to two gives investors a much shorter potential investment horizon, encouraging more speculative activity. This is expected to contribute increased transactional volumes and demand into the lower to mid value end
Protecting your bottom line
Safeguarding property investments with CBRE’s expert consultancy services
During the recent property market downturn, private property investors have been increasingly focused on protecting their bottom line. Throughout this challenging period, CBRE’s Consulting Services team has actively assisted investors with professional support to protect and enhance the value of their assets.
This includes providing make good assessments to mitigate financial loss at lease expiries, as well as enhancing tax efficiency with depreciation schedules for property acquisitions and capital expenditure projects.
Make Good Assessments
Traditionally, many private landlords in New Zealand adopt a DIY approach when dealing with vacating tenants, rather than engaging a professional team to prepare formal make good assessments at lease end.
Phil Overend, director of CBRE Consulting Services, says this typically results in landlords overlooking tenant obligations to repair and reinstate the premises, and/or missing out on claiming financial sums to cover any make good requirements.
opportunity in this sector.
“Landlords are frequently absorbing unnecessary costs at lease expiry. This creates a ‘downward ratchet’ effect that erodes the value of their assets over time.”
In the past two years, as investors have increasingly focused on maximising returns from their assets, more property owners have realised the value of formal make good schedules to fully account for tenant obligations including reinstatement, repairs, and redecoration throughout the lease term.
Many landlords are surprised at the comprehensiveness of a professionallydrafted make good assessment and the value of the associated financial claim.
“The cost of works the tenant is responsible for often far exceeds the cost of obtaining a professional make good schedule, usually by a factor in the tens and sometimes over a hundred times.”
Landlords who work with CBRE benefit from the team’s extensive international experience and professional qualifications, particularly in leading financial negotiations with tenants, Overend adds.
Another proactive measure landlords can take is commissioning a premises condition report at the start of the lease. This clarifies tenant obligations at lease expiry through documenting the
of the market.
Additionally, the reintroduction of interest deductibility provides a significant tax break that increases the appeal of owning investment property, says Murdoch.
“These changes are already filtering through to the market, with agents reporting increased enquiries and improved open home attendance in the lower price brackets.”
The upper value bracket of the Christchurch housing market ($2m and over) has remained robust through the downturn and this is also expected to continue, with many purchasers still prepared to buy if they find the right
Among the high-value transactions that have been completed in the residential market recently are five sales on Scarborough Hill in Sumner. These properties changed hands at prices between $3m and $9.1m. All the sales were to existing Scarborough residents who are relocating within the suburb. Most of these transactions were concluded off market, to well-informed buyers.
The Christchurch residential property market is in a strong position for growth as we approach the end of 2024, Murdoch says.
“Several fundamentals are now in place in Christchurch that provide good cause for optimism. The main threat to the market’s recovery at this stage is a return of runaway inflation, however this is unlikely, given the global economic environment where other countries are also managing similar challenges.”
property’s condition and ownership of fixtures and fittings when they move in.
CBRE’s chartered building surveyors prepare detailed premises condition reports which can again result in a lease expiry position which far outweighs the cost of preparing the initial report. Fees can also often be shared between landlord and tenant.
Tax Depreciation Schedules
Depreciation schedules are a key area where CBRE Consulting Services helps private commercial property investors maximise the tax efficiency of their holdings.
In the current climate of high interest rates, improving cash flow by maximising depreciation deductions is crucial.
As investors can no longer claim depreciation on building structure, it is now more important than ever to split out the fitout and other non-building assets
such as hardstandings and infrastructure for depreciation purposes, says Overend.
“Our specialised quantity surveyors dive into the detail and identify every single depreciable asset associated wtih a property acquisition or CapEx project.”
During the downturn, CBRE has seen clients obtain purchase price allocations for acquisitions under $1m and construction cost allocations for projects under $500,000, both with a payback period on fees of three months or less.
“Our team includes experienced tax practitioners and experts with big four accounting firm experience. We’re wellequipped to help investors navigate the complexities of make good obligations and tax depreciation, at a time when paying close attention to these areas is vital in protecting investors’ financial positions.”
Phil Overend, Director of Consulting Services at CBRE Christchurch
Victoria Murdoch, Residential Valuations Director at CBRE Christchurch New Zealand Residential Townhouses
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And
Central City Office Unit
This quality premises located at the junction with Hagley Park and the main arterial of Moorhouse Ave is a prominent and well-known landmark building, offering excellent visibility and ample car parking with options for further development on the expansive yard. Its close proximity to the CBD and convenient access to Christchurch’s main arterial routes make it a highly desirable location. This tenancy is one of the most central and easily accessible of its size, making it highly sought-after for a range of uses. Although it has been previously utilised as a vehicle showroom, the expansive warehouse space has great potential for various other purposes. – Office: 1,164.2sqm*
403a Ilam Road, Bryndwr
Looking for property advice?
For responsive real estate solutions that help your business thrive, get in touch with one of our property professionals today.
Tim Rookes Managing Director, Capital Markets 027 562 3700
Martin Winder Director, Valuations & Advisory 027 545 5424
Bonnie Stone Director, Investment Sales 021 843 690
