With hopes dashed that inflation has peaked and with ongoing global volatility, investors are holding firmly to their assets, reports Bayleys.
The message for investors, in the current volatile environment of inflation and ongoing global upheaval, is to wait and watch for opportunity, according to Bayleys market experts.
Bayleys national director commercial and industrial Ryan Johnson says investor hopes that the final months of 2022 would mark the peak of the year’s economic volatility were quashed by October’s shock inflation announcement of 7.2 percent.
That figure was down slightly on June’s 32-year high of 7.3 percent but significantly higher than the 6.4 percent that had been predicted by the Reserve Bank of New Zealand (RBNZ) and economic commentators.
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“What we can expect now is more of the same - and even more of it. That inflation announcement was a huge indicator of how things are going to play out over the next few months,” Johnson says, adding that a lot hinges on the RBNZ’s OCR announcement later this month.
“That expected forecast change in the OCR is going to create another pause on a lot of institutional capital as investors wait out interest rate volatility,” he says.
Meanwhile, data from Bayleys’ Insights and Data team and CoreLogic puts transactions of over $20 million in New Zealand at $1.8 billion for the first half of 2022, that’s 66 percent down on $4.02 billion for the same period in 2021.
“That theme of low transactions is going to continue over the next few months and that offshore volatility continues to spook the sophisticated capital. We are seeing some off-market deals happen, but vendors are reluctant,” Johnson says.
Data from Bayleys’ global real estate partner Knight Frank adds weight to predictions that this period of economic upheaval is far from done, with key economies including the US, UK and Australia predicting they will be in recession in 2023.
“The message for investors is really to hold. A lot of people have been hoping, and predicting, that the volatility was reaching its peak. When it didn’t happen that way meant people reacted strongly in the other direction, particularly in the significant surges on the interest rate swap curve,” Johnson says.
The Knight Frank data cites that escalating global economic and political upheaval is making investors much more cautious.
Johnson says energy crises in the UK and Europe, war in Ukraine and continued lockdowns in China all add up to too many unknowns for investors.
“That perfect storm also comes against a backdrop of increasing interest rates from central banks around the world as they battle to bring inflation back to manageable levels.”
The other factor impacting local market forces is the lower New Zealand dollar against other key currencies, which has led to a rise in capital interest from regions, such as the US.
“That is underpinned by the fact that New Zealand is seen as a safe harbour within APAC and has a long-term, overall macro story that is very positive,” he says.
Knight Frank forecasts that 66 percent of capital invested in the whole APAC region is likely to come from the US, making it the largest investor in the region by a long way. The next largest source of capital will be Singapore at 16 percent, followed by Hong Kong at six percent with Germany at four percent and the UK at three percent rounding out the top five.
But a challenging market environment will always bring opportunities, Johnson says.
Some of those may lie in emerging asset classes such as prime properties with high environmental, social and governance (ESG) ratings and this is also playing out in New Zealand, and residential trends such as senior living and build-to-rent apartment complexes.
“ESGs in particular are becoming a bigger and bigger area of interest for active capital investors. It’s a global trend that will play out here with high-rated buildings in good locations holding their appeal,” he says.
Beyond those emerging asset classes there will also be opportunities for motivated capital from investors who are well-informed keeping their eye on the ball, he says.
“There is plenty of opportunity, it will often just come down to timing. As balance sheets and capital get recycled we’ll see more transactions offering good opportunities. Where you have a willing seller there will be a willing bidder at the right price.
Johnson along with Bayleys managing director Mike Bayley and executive director David Bayley are leading an investor roadshow in Singapore in November to discuss active capital investment into New Zealand.
- Article supplied by Bayleys
