5. Industrial’s balancing act
Demand for industrial space will remain strong in 2017, despite already being at record highs. Developers will try to keep pace with the demand, but areas with limited land supply will feel the impact, especially through land prices. Investors will be keen to seek out opportunities due to the sector’s underlying strength, but yield levels (particularly in Auckland) are closing in on the cost of debt. Expect to see a greater focus on rental growth from landlords in 2017.
6. Retail fights back
The seven-year shake-out of underperforming retailers since the global financial crisis will almost be over, but some retailers may still struggle in an increasingly competitive market. Although a challenging sector we believe it is underrated in many aspects. If inflation does start increasing throughout 2017, this will likely manifest into higher rents. Capital values will rise as a result of yield compression - a positive ‘double whammy’ for investors.
7. Residential investors to target exemptions
We expect heightened sales activity in 2017 for off-the-plan apartment and terraced unit sales. These are exempted from the new investor minimum LVR policies implemented by the Reserve Bank. However, only experienced developers with a good track record holding resource consents and locked in construction costs will be supported by the banks and courted by investors. Consequently, supply won’t increase enough to satisfy demand. Rising interest rates may be enough to slow price growth to more long-term, sustainable levels of between 5%-7% pa, but achieving that will take some time in main cities and regional growth nodes.
8. Rural & agribusiness sector’s reprisal
In comparison to the start of 2016, dairy payout forecasts at the start of 2017 will be a pleasant sight for many. Local economic prosperity is a vital ingredient for the rural and agribusiness sector’s growth, but all eyes are on any potential changes globally that could disrupt export volumes into EU, UK and USA in 2017. Purchasing activity for dairy farms remains subdued in comparison to 24 months ago, but has increased in late 2016, particularly for properties in well-established areas with scale. Non-dairying pastoral farmland is in demand as well as other sectors such as horticulture, viticulture and forestry. Sales buoyancy will be supported by domestic activity, but offshore purchasers from North America, Europe and Asia will continue to invest based on the value they see in New Zealand’s product quality and safety.
9. Hotels shoots for the stars
Occupancy and room rates will surpass current record highs as inbound passenger arrivals remain at historically high levels. A shortfall of room availability in our key tourism markets will be a reoccurring theme for 2017, particularly in Auckland & Queenstown. There is potential for tourism numbers to be temporarily impacted due to recent earthquakes, although this is likely to be short lived with the underlying demand drivers remaining in place to underpin the market over the medium/long term. This will encourage owners to consider their options for expansion and refurbishment and developers and owner operators to commence new builds or conversion of redundant commercial buildings in an attempt to catch-up to the strong demand.
10. Confidence shaken
Results from both our residential and commercial confidence surveys for December 2016 (available mid-December) will be down for the year ahead in quake-affected and prone areas. This trend will continue through 2017. Consequences include a reluctance to invest in those areas for a while, with even more investor and occupier demand concentrated on Waikato, Bay of Plenty and Auckland, exacerbating already serious affordability issues.