Property primed for growth, CBRE says

Strengthening fundamentals indicate that New Zealand is well positioned for commercial property investment, according to CBRE New Zealand’s latest 2024 Market Outlook report.

Published as part of CBRE’s Pacific Market Outlook on the CBRE website, the research combines big-picture themes from NZ and internationally, including NZ-specific cyclical market forecasts alongside overarching themes that guide market shifts and decision-making.

Brent McGregor, CBRE New Zealand’s Executive Chairman, says, “Our research highlights a number of lead indicators that underpin New Zealand’s strong fundamentals relative to other destinations as our population, annual GDP, and returning city centre workforce grow.

“There’s a lot to like about NZ Inc as an investment destination right now, with many positive themes emerging. They underpin New Zealand’s leading ranking across a number of measures that impact property.

"As a result, investors we are talking to here and across the wider Asia Pacific region are beginning to look through the current interest rates picture with a view to a brighter forecasted future, and are talking about pricing some assets accordingly.

"This has been reflected in the international interest we have received for properties we have in the market such as 32 Iport Drive at Iport Business Park in Rolleston, and the Woolworths Waiata Shores Centre.”

Core among the contributions to this view are expectations that New Zealand’s inflation will recede to within the Reserve Bank’s target band during the second half of this year, allowing OCR cuts to commence. Following a peak in mid-2022, inflation has consistently slowed.

Zoltan Moricz, Executive Director of Research for CBRE New Zealand, says that CBRE anticipates interest rate relief to occur sooner than the RBNZ is currently spruiking.

“Wholesale interest rates have been volatile as they responded to changing expectations. At the same time, focusing on the bigger cyclical picture, the next major step for interest rates will most likely be down. Our assessment is that the cash rate easing cycle will commence before the end of 2024."

A second pillar of CBRE’s outlook is the view that New Zealand will continue to experience high population growth, driven by historically high immigration levels. In turn, this is driving demand for real estate.

Last year saw two annual records for immigration into New Zealand by non-New Zealand citizens.

The country witnessed 226,900 migrant arrivals in the year to December 2023, the highest ever for a 12-month period.

The overall net population gain from migration was 126,000, an increase of around 2.5% of the country’s population in the past year, and CBRE estimates 210,000 net migration into New Zealand by 2028. If it meets some of the higher growth scenarios, the population could lift by about 520,000 people to 2028.

“Pro-immigration policy settings and our ability to attract migrants have been key ingredients in creating significant demand across the spectrum of property sectors,” says McGregor.

“It could add pressure in some already tight markets, with for example additional demand for nearly 1 million sqm of logistics space.

“Further, since the New Zealand borders re-opened in 2022, the number of jobs has been increasing steadily, and almost 285,000 jobs were filled between June 2019 and December 2023, a 13.3% growth. This is driving an improving consumer outlook, industrial property sector resilience and growth, and a return to the city centres, which is often where new people are employed.

“Our research has also shown that an office-based working model is preferred in New Zealand. Office occupiers have a stronger preference for more office-based working than their USA and European counterparts, so Grade A office vacancy rates in Auckland remain low compared to other major global cities.

"Rental growth in the Prime office market has also been positive in the last years across New Zealand’s most important urban centres, more robust than in some Australian cities. Prime office yields are also now reaching their peak. . This provides good buying opportunities.”

McGregor adds that a clear trend has emerged of tenants looking to upgrade their premises, which CBRE has dubbed ‘premiumisation’.

“Nearly three quarters of the office re-location decisions in major city CBDs have involved premises which commanded the same or higher market rents.

"Relocations also enable occupiers to move closer to their end customers, re-configure workplace design to attract and retain talent, and match their sustainability ambitions with energy and wellness offerings in the new premises.”

Moricz says that significant opportunities also exist in emerging precincts defined by infrastructure investment. “We like micro-precincts: locations benefiting from rail, plus students and consumers craving buzz.

“Finally, stable to falling wholesale rates should reduce price anxiety around transactions. CBRE’s 2024 Asia Pacific Investor Intentions survey shows a general desire towards greater real estate allocations amongst investors.

"The reasons for increasing allocations are not surprising, predominantly revolving around the current market being seen as a good time to buy for those in a position to do so.

“Investors see the market as having had a reasonable price adjustment with more motivated sellers, that provides a window of buying opportunity. Increasing investor appetites bode well for transaction activity and provides an opportunity to capture an increased volume of cross-border capital into New Zealand.”

- Supplied by CBRE