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JLL New Zealand Managing Director, Nick Hargreaves provides his predictions for 2018
2017 saw a change in government and a shift in policy direction. With this comes a degree of uncertainty, but also new opportunities. Following a busy 2017 in the New Zealand commercial property market, we see 2018 being full of opportunity for the investor community.
This year, we expect to see high levels of investor allocation to alternative asset classes including hotels, student accommodation, retirement villages and mixed use developments as a means to further diversify portfolios.
With two convention centres under construction (Auckland and Christchurch), New Zealand is set to see a whole new tranche of demand from the 'delegate traveller' which will underwrite a number of room nights in both cities while adding some impetus to the surrounding retail nodes. With international arrivals punching through to 3.68 million for the November year (8% growth y-o-y) the flow on effects for the hotel sector and wider tourism market will be positive in 2018.
Free tertiary education for first year students, which comes into play in 2018, will likely increase demand for student accommodation. We expect to see an increase in demand for purpose built student accommodation and corresponding demand from experienced investors wishing to trade in these assets.
In core commercial property markets, we see the weight of offshore capital hunting office assets potentially pushing investment yields lower into record territory for prime CBD stock. All three main centres have seen offshore investment into prime office assets. With competition tight, expect to see more opportunistic and add-value plays on secondary stock in prime locations.
Industrial property will continue to enjoy a golden era driven by record low vacancy and a supportive economic backdrop. Auckland industrial property recently hit its lowest vacancy rate since our records started in 1993, a testament to the performance of the sector and the wider economy.
While we expect another strong year for commercial property in 2018, every year has challenges, but through this we evolve. New Zealand consistently proves to be a resilient country, which will no doubt lead the world as migration changes. The expected turn in net migration, higher inflationary expectations, evolving development funding models, a new construction cost regime, automation and AI, office efficiencies and co-working, the rise of e-commerce and online retailing will all become bigger themes playing out in the New Zealand commercial property market over the next 12 months.
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