This year 93,770sq m of office space will be completed in Auckland - nearly double the 54,220sq m of office space constructed in 2016 - reveals a new research report.
"However, the extra office supply in Auckland and Wellington won't dent strong capital values and rental increases," predicts Alan McMahon, national director, research and consulting for Colliers International.
Releasing the agency's last New Zealand Research Report for 2017, McMahon says 51,300sq m of new office has come onto the market in the Auckland CBD with the completion of Datacom, 12 Madden St, 46 Sale St and the retrofit of 125Q. Outside of the CBD, 22,820sq m of new office space has also been created with the completion of Quad 7, 119 GNR, Mitre 10's head office, 28 Corinthian Drive and Candida Office Park – Building 4.
"We expect another 19,650sq m to be completed this month including B:Hive in Takapuna and 22 Pollen St, Ponsonby," McMahon says. "And, looking forward, we have another 55,700sq m under construction estimated to be completed in 2018, including No 1 Sylvia Park, St Georges Corporate Centre and Vocus House."
The new report says New Zealand investors will be the dominant players in the nation's rural sector in the year ahead, while offshore investors will turn their attention to urban commercial property as changes to the Overseas Investment Act takes hold.
"Even more overseas capital is expected to chase urban assets due to restrictions on foreign investors buying rural land purchases of 5ha or more - but mainly due to New Zealand's attractive returns.
"Syndicators and overseas funds will continue to be the dominant buyers of substantial city centre properties, as domestic institutions find it hard to justify buying at current price levels."
Of interest to investors, the report does not expect the Official Cash Rate (OCR) to go up until late 2018 at the earliest but debt costs will increase due to increased funding costs offshore.
"Shortage of quality stock for sale in a high demand environment will be a more powerful influence than marginally higher debt costs, driving further yield compression in the commercial sector," McMahon says.
The impact of another Government policy in the form of a more stringent application of GST on offshore purchases, is likely to have a flow-on benefit to the industrial property market with an increase in the demand for warehousing from retail logistics providers, as a result of a boost in domestic online retail sales aided by low fuel prices. In Auckland, a regional fuel tax will probably concentrate demand close to arterial roads. Domestic sales can be expected to grow more quickly in 2018 than during the last few years.
The high level of confidence shown by industrial property investors in 2017 will prove to be justified. "During 2018, investors can expect more rental rises and steady (already very low) yields, particularly in the main centres."
McMahon says strong demand for housing and infrastructure is having an impact on the industrial sector and especially in Auckland. Consent values and numbers for both residential and non-residential building projects are at record highs reaching $6.15 billion in the year to October 2017 and 11,257 consents, which is close to the pre-global financial crisis level.
Colliers' research believes staff costs and lower immigration will begin to impact retailers – particularly those in the food and beverage sector. "However, the lag effect of these measures and continued positive consumer confidence will defer any negative effects beyond 2018, while robust tourism growth will counteract these effects in tourist hotspots."
Where tourists are "thin on the ground," food and beverage demand for more floor space can be expected to cool from 2019. Strong visitors number are helping to boost retail sales, especially in the food and beverage sector. McMahon says tenant demand remains buoyant on the main CBD strips in Auckland and Wellington.
The demise of some high-profile retailers highlights the competitive nature of the retail market and threats from growing e-commerce. "This may limit the ability of landlords to increase retail rents significantly over the short term."
He says consumer preferences are ever changing with online shopping, 'click and collect' serves, same day delivery orders, food subscriptions boxes, all gaining traction and diverting traffic away from physical stores.
"Shopping centres are continuing to evolve with mall owners investing heavily in expansion to reinvigorate tenancy mix and enhance the experience of shoppers through improved amenities like free Wi-Fi, retail laneways, outdoor dining areas and well-designed shared spaces."