Economic recovery and calming an extraordinary period of volatility and inflation are top of the election agenda for the commercial property sector, according to key industry commentators.
Bayleys national director commercial and industrial Ryan Johnson says while general elections often cause a slight market pause, as commercial landlords and tenants wait for the dust to settle, this year, with transaction volumes significantly down and costs rising, the sector is looking for clarity and certainty about what the economic future holds.
Economist Cameron Bagrie says the best thing a government can do to help the commercial property sector is help the Reserve Bank battle inflation.
The bigger the inflation problem, the bigger the downside risks to the economy, and risk of rising vacancy rates.
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“The last thing we want is for the Reserve Bank to feel it has to do more because the government feels obliged to spend more to keep up with inflationary pressures. At that point you’re a mouse on the exercise wheel,” Bagrie says.
The Reserve Bank has signalled they are done raising rates, but that is somewhat conditional on government spending being very restrained beyond the next 12 months; that restraint needs to be delivered not just forecast to occur, Bagrie notes.
One of the main issues impacting the commercial property sector going into the election is the risk that cap rates will continue to rise.
“When cap rates go up, valuations go down. Listed property vehicles are trading at a discount to their net tangible asset backing. That suggests the market is fully anticipating further asset write downs and revaluation in the coming 12 to 24 months.”
Revaluations then lead to the next problem concerning the market which is the risk of refinancing and access to credit,” he says. “As valuations fall, your leverage goes up and the banks start to have a bit of a closer look at what they’re lending and to whom.”
Property Council New Zealand CEO Leonie Freeman says another key election issue is improving the sustainability and resilience of the country’s building stock.
“Ensuring we have planning legislation that is fit-for-purpose and that we are developing and constructing buildings that enable cities and infrastructure to thrive is a key focus for the Property Council,” she says.
Another focus is trying to ensure all relevant parties within government are talking to each other and working together when it comes to legislative reform and making decisions that impact the property sector.
“Without that, too often we can discover down the track that legislation has had unintended consequences that actually impede progress or create new problems.
“This election is about looking further ahead. We need to start thinking innovatively and with a longer-term perspective in both central and local government, rather than what can be achieved in a three-year term,” she says.
- Article supplied by Bayleys
