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Commercial retail and office property outlook
Office, retail and industrial sectors look forward to another solid year
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By Chris Dibble Director Research & Communications with Colliers International
Bright outlook for diversified office market
Positive economic conditions driven by population gains and high employment rates have delivered another year of solid activity in the office property sector. This is forecast to continue
Difficulties for occupiers searching for suitably available prime space ready for occupation is an ongoing trend, which is enabling a supply response from developers. Refurbishment, strengthening, repositioning and new build activity is underway, but challenging construction sector conditions mean the pace of new space becoming available has not always met expectations.
In many central office hotspots, conditions are tight, but there are opportunities for tenants to consider, more depending on the level of tenant flexibility. The key occupiers driving office sector growth continue to be the FIRE sectors (finance, insurance and real estate) as well as local and central government. The contribution from technology-related services is also growing.
Many tenants searching for space remain focused on traditional forms of leasing.
However, the rise in coworking, serviced office space and other variations – focusing on the SME and start-up sectors – have proven popular.
Colliers International APAC research shows this sector accounts for between two percent and nine per cent of total office space in major cities.
It is no surprise that the locations facing the most imbalance between demand and supply are where average prime face rents are escalating the fastest. Current growth rates of between three percent and five percent per cent per annum are above long-term averages, especially in a low inflation environment.
Insurance costs are rising in some cities. Incentives are available for the best tenants offering the best terms.
The high cost of fit-outs has seen a renewed focus
in this area, especially in centres where construction sector constraints are high. While many locations are experiencing strong growth, there are options for tenants to pursue to reduce the impact of rising rents and operating expenses.
Shorter lease terms are an area we are seeing tenants chase, perhaps in response to new IFRS requirements as well as reducing long-term commitments.
Investors remain confident and are focused on economic and property drivers, the ability to increase cashflow through negotiations and/or asset repositioning, lower interest costs and pent-up purchaser demand.
The rejection of a more comprehensive capital gains tax earlier in the year has also been a key motivator.
The global hunt for higher returns has seen more active offshore purchasers and adds depth to our transactional activity.
Overall, the outlook for offices remains solid, supported by our net positive survey responses in the latest Colliers International Investor Confidence Survey.
Yearbook 2020 T his provides a supportive base and positive outlook for retail real estate in New Zealand.
In the year to June 2019, approximately $95 billion of retail trade in ‘bricks and mortar’ properties took place. This is up almost four percent compared to the previous year.
The biggest winners were in non-discretionary sectors, with consumers more selective in their discretionary spend, an ongoing trend over the past decade.
With a solid base in place, forecasts remain for further growth and expansion. Evidence of this is the latest medium-term employment forecasts from MBIE.
The retail trade sector is forecast to grow by an additional 19,829 workers between 2018 and 2023, representing annual growth of 1.6 percent a year, comparable to the annual average growth for all industry groups.
The variance in retailer vacancy rates by asset type and location continues.
Retail premises without a supportive retail mix in an underperforming catchment are experiencing the most testing conditions.
Destination retail centres with a customer-centric strategy providing entertainment and leisure experiences continue to receive the most enquiry, no matter the location.
Nationally, consenting activity has reduced from recent highs, but the total value continues to rise. This highlights the elevation in customer requirements and the extent of works that developers and landlords face in retail. Variances between demand and supply provide the guidance for rental performance for landlords, but
Non-discretionary sectors lead a buoyant retail property market
Physical retail stores in New Zealand capture more than 90 percent of all retail sales and spending continues to edge up on an annual basis
tenants in many precincts across the country still face annual rental rate rises.
While investor confidence in the sector remains supportive, investment yields have firmed slightly or have been relatively flat over the past 12 months. This has not reduced the proportion of deal flow in the sector. Our analysis of commercial and industrial sales data shows purchasing interest remains strong for retail assets, with just under 30 percent of all 2019 transactions in the retail sector. This is up slightly on previous years. With almost $1 billion in retail assets transacting in 2019 so far, and many more large retail deals to be completed, the outlook for retail investment remains solid. We forecast investors to remain vigilant in their due diligence
Substantial depth in the industrial market bodes well
Many favour the defensive characteristics and positive aspects supporting the growth of the industrial sector
At the heart of the industrial sector, goods-producing industries such as manufacturing and construction now account for around one-fifth of New Zealand’s $300 billion economy, according to Statistics New Zealand.
However, this is boosted by other services such as transport, warehousing and postal services, an industry showing another year of growth.
Additional depth comes from rising public infrastructure spend. Employment levels in the industrial sector are solid, and latest forecasts from MBIE show further strong gains over the next few years.
This supports the absorption of industrial land and buildings.
In the North Island, the ‘Golden Triangle’ between Auckland, Hamilton and Tauranga will continue to rise as a popular occupier,
owner-occupier and investor destination. T
he interconnection of population, ports and infrastructure is a strong driver for the sector.
Land availability at suitable prices to be profitable was an ongoing battle in 2019 requiring plenty of careful consideration.
Experienced, well-funded stakeholders are looking to capitalise in this space and forge on with develop
ments.
Hawke’s Bay, Rotorua, Palmerston North and New Plymouth are showing positive signs in leasing activity. Prime premises are understandably the most desired, creating hotspots of activity. New construction is apparent, but typically caters for pre-committed enquiry in the larger markets.
Wellington’s industrial sector continues to forge ahead, but more new-build activity is needed to alleviate supply shortages.
Access to new precincts could reduce the imbalances, but new infrastructure connections are needed. In the South Island, Christchurch’s industrial sector’s ongoing recalibration provides a more balanced demand and supply profile which has seen rent remain relatively steady over the past few years. The lack of available development sites in Queenstown and Dunedin as well as the pressure on existing sites continue to push rents higher.
From a sales perspective, the industrial sector accounts for approximately 50 percent of all commercial and industrial sales activity annually in New Zealand. This provides investors with plenty of entry and exit opportunities. Further, rising rents, limited incentives and pent-up investor demand are driving average prime yields down, now typically ranging between five percent and 6.5 percent but some are below.
Purchaser interest is growing for well-positioned, add-value secondary premises.
Colliers International Research’s Investor Confidence Survey shows respondent expectations for industrial next year remain as strong as ever.
Therefore, the outlook under current conditions showcases another positive year ahead.
The Wuhan Coronavirus Outbreak: What does it mean for real estate?
The outbreak of the Wuhan Coronavirus (2019-nCoV) – which began in December 2019 and has intensified in the first few weeks of 2020 - poses a new downside risk to the Greater China and, to a lesser degree, global economy.
cbre.com/research-and-reports/Greater-China-ViewPoint---The-Wuhan-Coronavirus-Outbreak-What-Does-it-Mean-for-Real-Estate
40+ Corporations Working On Autonomous Vehicles
Beyond trendy names like Tesla and Alphabet chasing self-driving cars, a host of auto brands and other tech heavyweights are also investing in autonomous R&D. Private companies working in auto tech are attracting record levels of deals and funding, with autonomous driving startups leading the charge. Along with early-stage startups, VCs, and other investors, large corporations are also angling to get a slice of the self-driving pie.
cbinsights.com/research/autonomous-driverless-vehicles-corporations-list/
The Top 10 Vulnerabilities Used by Cybercriminals in 2019
With new vulnerabilities emerging all the time, patching every single thing is out of the question. So, how can you prioritize your efforts without all of the facts? Recorded Future researchers have scoured thousands of sources to uncover the vulnerabilities that cybercriminals actively exploited the most in 2019. Our annual vulnerability report details the year-over-year changes in vulnerability trends and more.
go.recordedfuture.com/vulnerability-report-2019
8 Best Industries for Starting a Business in 2020
Inc. has spent the past couple months speaking with industry experts and crunching the latest data to create our report on the Best Industries of 2020: a detailed breakdown of the eight industries most primed for great new entrants and a breakout year.
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Surveys continue to show that while construction and infrastructure workloads have increased growth across New Zealand, an acute skill shortage is creating bottlenecks that threaten the viability of the sector N ew Zealand needs a skilled, sustainable construction workforce to ensure the sector has the people it needs now and into the future, with estimates that the construction industry will need an extra 50,000 workers by 2022.
To meet the growing demand for skills, industry professionals must play their part in developing and upskilling their workforce. In order to help industry leaders take positive action and future-proof their workforce so that their companies are not left behind, The Royal Institution of Chartered Surveyors has recently launched the RICS New Zealand Construction Sector Training Program: a unique program designed for quantity surveyors and construction professionals looking to build their professional skills and commercial expertise.
The training program’s face-to-face sessions run across the lifecycle of construction projects focusing on core RICS Pathway Competences in Quantity Surveying and Construction.
Individual courses include:
- Key Construction Contracts NZS3910
- Construction Conflict Avoidance and Dispute Resolution
- Procurement and Tendering
- Advanced Cost Planning and Estimating
- Negotiation Skills in Construction
- Managing Change – Variations
- Delay and Disruption - Project Financial Control - Contract Administration The training program can be taken by individuals in your company or as a comprehensive development program for a construction team, customised to your specific requirements for added value.
The sessions are designed to be interactive and practical and will be delivered by experienced RICS Chartered Professionals with local and international experience. RICS is committed to helping the New Zealand construction sector build its workforce capability and capacity. To book an upcoming workshop for you or your team, please contact Mike Stevens in the RICS Training team: +64 27 425 1633 or mstevens@rics.org.
The RICS Construction and Infrastructure Surveys show that construction and infrastructure workloads continue to increase across New Zealand, however, acute skills and labour shortages persist. To meet the growing demand for skills and ensure the industry is prepared for what the future will bring, industry professionals must play their part in developing and upskilling their workforce.
Quantity surveying and construction professionals can adapt and remain proactive in this market by attending this new suite of training. Gain the critical knowledge and skills required to build commercial expertise, reduce risk, increase capacity and maximise opportunity across the construction sector.
For more information, visit rics.org/constructionsectornz Yearbook 2020
Facilities management at design phase is a positive
The report, jointly funded by the Facilities Management Association of New Zealand (FMANZ) and the BRANZ Building Research Levy, the Facilities Management Industry Census, found that early engagement of FM practitioners in planning and development, particularly in relation to building whole-of-life performance as well as whole-of-life costs, has potential to add significant value.
Early FM engagement contributes towards the three realms of building quality – functionality, durability and performance. FM practitioners use their operational knowledge to ensure buildings are designed in a way that can be sustainably and safely managed, the When FMs were engaged early, it was the result of specific circumstances, generally strong economic drivers that took account of whole-of-life costs and quality.
This was often evident in the Private-Public Partnership model in which the private organisation responsible for delivering the facility was also responsible for the ongoing operation of the facility.
In some cases, these private organisations were responsible for handing over the building free of defects at the end of their contract term, typically 25 years. Participants noted that compared to traditional procurement, this creates strong incentive for specifying more durable materials report says.
Problems with building quality have long been documented,” says FMANZ chief executive Gillian Wess. “This report suggests that early involvement from facilities managers in the design phase provides an avenue to positively influence the functionality, durability and performance of buildings and save money.” Practitioners and purchasers both recognised that early pre-occupancy engagement of facilities managers in the development of new facilities was relatively uncommon. However, there is growing emphasis on the value of FM in the design of a facility, taking into account the operational requirements for maintenance, the needs of users and considerations around how the space is used.
“There is considerable effort in pushing this practice under the banner of ‘soft landings’, in which FMs are involved from design through to occupancy, ensuring a soft landing when the building is occupied. The premise of this approach included reduced operational costs for facilities through a focus on whole of life costs.”
Several participants identified that typical building procurement practice effectively prevented such an approach, "as upfront costs were over-emphasised in tendering processes, to the detriment of building quality and operational expenditure". A recent report makes the case for involving facilities management (FM) professionals early in the building design phase
such as claddings.
Other circumstances leading to FM involvement included long-term building occupiers with a financial stake in the building or fitout.
The facilities managers interviewed by the authors had been involved in various stages of development prior to occupancy. Their initial input was into the design brief, using their understanding of building occupants to inform technical requirements for the building. This includes mode of working, habits, density, electrical loading and consideration of operational needs such as cleaning cupboards or loading docks.
Facilities managers also play an intermediary role between the design team and occupants. This is a bidirectional function, turning occupant behaviours and expressed desires into technical requirements and communicating the functional design elements to occupants as well as setting appropriate expectations of the new facility. This was identified as being effective in improving quality by reducing the need for post occupancy adjustments or retrofit, which are common in new facilities due to misunderstanding of occupant requirements by designers or misunderstanding of the design by occupants.
In the detailed design stage, facilities managers provided input into product choices with particular consideration of how occupants will use the space and features; what maintenance and renewal activities will be required and how they will be performed; how products will perform with respect to durability and energy efficiency.
There was a strong theme of seeking the operational expertise of facilities managers to assist embedding maintenance into the design, in order to reduce operational costs and give effect to safety in design principles.
“Through the detailed design stage, FM input ensures that durability and performance requirements can be feasibly met and supported through maintenance,” the report says.
“As new facilities progress into occupancy, facilities managers in their traditional operational role manage the performance and durability into the long term.”
The report suggests that greater implementation of early FM engagement could be achieved through greater professionalism of the industry, greater awareness of its value amongst purchasers, and adoption of advanced procurement models which recognise whole of life costs.
“Procurement models with a heavy focus on upfront cost are a strong barrier at present but these are being investigated by the Industry Transformation Agenda and the BRANZ quality research programme.”
FMANZ Gillian Wess, ceo@fmanz.org 021 284 2440
BRANZ Anne Duncan, anne.duncan@branz.co.nz 027 545 7764
The Facilities Management Association of New Zealand (FMANZ) represents New Zealand's community of Facilities Management professionals and supports education, networking and knowledge sharing
