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News Release

New Zealand

Don’t waste a perfectly good recession

Have you made the most of the worst global recession in 65 years?


 

 

Significant piece of industrial land for sale /new-zealand/en-gb/news/848/significant-piece-of-industrial-land-for-saleChristchurchSignificant piece of industrial land for sale
Historic West Coast Hotel for sale/new-zealand/en-gb/news/849/historic-west-coast-hotel-for-saleChristchurchHistoric West Coast Hotel for sale

In New Zealand, the period between 2010 and 2012 will be known as an important time for occupiers as one of the last chances to significantly improve their lease obligations, says John Church national director of leasing at Jones Lang LaSalle.

The market downturn provides an opportunity to sharpen and focus occupier strategies and provide the opportunity to position an occupiers’ business with better office accommodation.

Church says “one of the most important questions that office occupiers should be asking themselves in the current market is; how will we emerge from the downturn? Can we be confident that we are in the best possible position and have maximised our opportunity now that the economic recovery is beginning?”

New Zealand is now steadily emerging from a recession that lasted for five consecutive quarters over 2008 and early 2009. After solid GDP results early in 2010, NZIER forecast economic activity in New Zealand will average 2.5% per annum over the next four years compared to 0.5% per annum over the last four years.

“This signals to many people that the worst of the global financial crisis is over for New Zealand. However, have occupiers made the most of a perfectly good recession? General apathy may mean some office occupiers will miss out on the cost saving opportunities available in today’s leasing market, says Church”.

One of the major reasons for this is that occupiers focus too heavily on cost reduction, rather than cost avoidance and cost management.

“The ‘plan for long-term success’ mentality needs to mix better with the ‘short-term defensive survival’ mentality so that occupiers can position themselves solidly over the lifetime of the business and take full advantage of the next rise in economic performance,” he says.

Asia Pacific’s quick rebound from the GFC to a more balanced environment – and in some cases a more landlord-favourable situation – signals that the window of opportunity is closing.

The growth profile of New Zealand and the supply and demand conditions in the office markets, however, means that the opportunity for New Zealand occupiers to secure a better leasing agreement remains ajar for a longer period of time than other major markets in the Asia Pacific. Hong Kong CBD for example is already showing office rental appreciation in the vicinity of 20%.

“Timing is everything, we never really ‘see’ or reach the bottom of any business cycle as lifting confidence and increasing volumes suddenly puts us mid-point on the rising curve,” says Church.

“Timing your activity to take advantage of the market will be critical for success. Investigating whether better office accommodation at a similar rate is currently available to you should be an occupier’s current focus”.

“Occupancy costs are typically a top-three expense, and the hardest to adjust quickly. Lease commitments whilst short, suffer the vagaries of significant speculative bubbles, and there has not been the ability since 2002-2003 to lock in your costs irrespective of changes in economic conditions,” he says.

Chris Dibble, head of research at Jones Lang LaSalle, notes that rental growth from the early 1990s was slow, with the development of the Vero Tower in 2000 providing a new benchmark rent of $400 psm.

“However, after 2002-2003 rents rose rapidly in the space of a very short time. Premium office rents between 2002 and 2008 in Auckland and Wellington increased by 8% and 10% per annum respectively, says Dibble.”

“Business operating surplus between 2002 and 2007 was also increasing, which supported the increase in rents. However, as the market conditions altered in 2008, the ability of landlords to increase rents further reduced significantly,” he says.

Auckland and Wellington premium office rents have decreased by 9% and 4% respectively since the cycle peak was reached in 2008, according to Jones Lang LaSalle research.

“Premium office rents now sit at $480 psm net and $550 psm gross respectively, however, the rate of decline in rents has slowed and many landlords will be looking to increase rents within the next few years” he says.

“The closer we move to that period, the less leverage a tenant can use on their landlord and the opportunity to significantly improve their lease obligations diminishes”, says Church.

In order to take advantage of the situation, an integrated solution through the entire occupation process, is a pre-requisite in the current environment.

“Tenants are in the driving seat, and we find that tenants demand access to a one-stop shop in-house business solution as we progress through the beginning of the economic recovery. Jones Lang LaSalle is capable of engaging with tenants at any level and at any stage of the process.”

“Our Business Solutions team at Jones Lang LaSalle covers every aspect of the property challenge, right through concept planning, site selection and acquisition and then on through design/project management of workplace fit-outs and eventual management of the day to day business facilities.”