Cautious optimism is the main mood in New Zealand’s commercial property and economic sectors following the Reserve Bank’s first OCR cut since March 2020.
Bayleys head of insights and data Chris Farhi says the signs of positive movement are showing within the commercial property sector following the OCR cut in August.
In its latest frontline survey of commercial brokers across New Zealand, Bayleys found that 43 percent had seen more enquiries from buyers since the OCR cut, while 37 percent said they seen no noticeable change and 14 percent said more owners were thinking about selling their properties.
When asked what impact the OCR move had had on prices, 61 percent of Bayleys commercial brokers reported that there had been no noticeable change and 27 percent reported that vendors were seeking higher prices for their properties, Farhi says.
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Economic analysts spoken to by Bayleys’ Total Property heralded the OCR change as the start of recovery for both the commercial property sector and the wider economy, with the note that change is likely to come slowly.
BNZ head of property finance Phil Bennett predicts an OCR of around 2.75 percent come mid-2026.
“We won’t see the speedy drop in the OCR that we saw on the way up, so the benefits of reduced interest rates will be a slower journey, but to acceptable positions.
“The commercial property forecast for 2025 is steady with those forecast OCR reductions improving interest cover ratios to within the banks’ preferred ranges. That will take pressure off some investors and likely see yields improve,” Bennett says.
MaxCap Group NZ chief investment officer Nick Bullick says a boost to confidence is the key short-term change following the OCR announcement.
“It is still very early days and we’re not going to see a sudden or dramatic rise in property prices, residential or commercial, and we’re not going to bounce straight back to pre-Covid levels, but the change is huge in terms of market sentiment.
"It might give some buyers the confidence to pay just that bit more without the fear that they’ll be overpaying for something that’s going to drop in value.
"These early days of the shift could see some good deals still available.”
Economist Cameron Bagrie expects negative GDP to continue through the last two quarters of 2024 with all eyes on what sort of recovery can be expected 2025.
“It is likely to be sluggish as there are still structural problems across the economy, such as weak productivity growth.
“This time next year I think the economy will still be operating below capacity with an unemployment rate around five percent, but the good news is we'll be heading in a positive direction.
"Real GDP growth will be around two to three percent and house prices will be positive again,” Bagrie says.
Economist Tony Alexander says while the outlook for both the economy and the property market is better it’s important not to get carried away.
“We can expect better growth through 2025, but there is still a lot of restructuring to be done which will mean higher unemployment.
"There are still post-pandemic challenges for some sectors like retail, residential construction and other sectors that support it, as well as hospitality. Returns for some farmers are also not so good.
“Ultimately, though, interest rates will be lower than they are at the moment so that’s clearly a positive,” Alexander says.
ASB chief economist Nick Tuffley says those who have been biding their time waiting for the right opportunity will now have some certainty that it’s safe to move.
“We should now see commercial investors being prepared to pay a slightly higher price, as financing costs come down and investors become more comfortable with a lower yield.”
Vega commercial finance specialist Kevin Miles says with yields up and interest rates coming down more people are likely to be moving back into investment “because they'll be willing to borrow to buy”.
“Interest rates on deposits are also falling so those who were thinking it was great having cash in the bank at six percent, will be thinking about what to do when it is 3.5 percent and looking at investing in property.
"We're going to see a lot more investors and a lot more willingness to buy something a bit larger,” Miles says.
- Supplied by Bayleys
