Recession over the hump and wasn't so bad after all, Sir Robert says

Sir Robert Jones. Photo / Supplied

One of New Zealand's best known and successful property investors, Sir Robert Jones, says he's "mildly optimistic that the worst is behind us and that well-presented, well-located office buildings will fill up over the next 18 months".

Writing in Bayleys latest Total Property publication, Sir Robert says the problems New Zealand faces are social, with a negative fiscal consequence, rather than economic.

"Old hands in the commercial property world will agree that this recession is probably over the hump and hasn't been as bad as many of us had feared," he says.

Sir Robert says memories of the early 1990s crash remain a permanent scar on the commercial property market but this downturn was different because of "a sensible loosening of the monetary policy strings instead of the insane tightening which occurred here in the 1990s, which was unique to New Zealand and ignored the lessons of the Great Depression. Since that 1930s horror era, only the inept Heath Government in Britain in the early 1970s had deduced that the way to handle a recession was to make it worse - that is until the 1990s in New Zealand."

Another factor that lessened the impact of the recent recession on the commercial property market was the absence of an over-supply of office space.

"For that reason, perverse though it may sound, I was pleased the recession arose when it did. Another year and institution and developer dummies would have been under way with speculative office towers, as indeed many were planning.

"Naturally the downturn wiped out the developers as downturns always have and always will, and in turn, wiped out thousands of mums' and dads' savings through dumb finance company lending to those developers.

"Aside from stupidity, the salient reason for this disaster was the imbalance which arose when finance companies found cash inflows easy and sensible lending options scarce. So they increased their high-risk lending to developers in the absence of other options. It's an age-old cynical, cyclical pattern which will repeat itself within a decade."

Sir Robert says that commercial property, thanks to lengthy leases, is always the last to feel the impact of a downturn, but also the last to recover.

"Thus we have a couple more years of hopefully decreasing lease incentives during what should prove a gently improving climate.

"My pick is that Auckland will recover first, primarily due to immigration which will maintain the city's growth and the vigour of its commercial community. Pundits are picking a steep rise in the capital's vacancy rate in a couple of years' time due to several large new developments coming on stream, plus the sinking lid policy of the current Government.

"Personally, I don't believe it will be too bad, as many of the to-be-vacant buildings are terrible dogs and should be discounted as competition and also because the Government will fail in its public service reduction objective.

"We've seen it all before. Sacked divisions in Government departments simply re-emerge as consultants, costing their departments more than when they were salary earners while creating demand for small suites."