We hope you are keeping well or bouncing back to good health if Covid has caught you out.On behalf of the team, below is a quick update on the commercial property market for the last business quarter. General mood The 2021/22 financial year for commercial property was best described as exceptional in terms of volume of sales and value of transactions. It was the perfect recipe of rents up, vacancies down, cost of debt low, stock in short supply. But how are things looking now? Economic volatility feels like a fitting statement. No industry is immune from the challenges of Covid and if the media chat is right, we may see investor’s appetite for risk start to wane. The effects of the pandemic are hitting hard now with inflation rising, labour shortages impacting bottom lines and cost of debt climbing. Add European tensions to the mix and we’re faced with major impacts on global relations, commodity prices and broken supply chains. Hang on for the ride, it won’t be dull. While we think these variables might soften yields in certain sectors, there will also be some winners out of the rising cost of debt, especially those in a strong financial position to take on risk and capture quality investment-grade real estate. Industrial Sector 😊 Quality industrial property continues to see strong occupier demand against limited supply and some landlords will benefit from strong rental growth. Rising construction costs are also slowing down the delivery of new premises, which of course just adds fuel to the demand. Vacancy levels in industrial properties are sub 1% in most locations, making them very resilient to the pandemic woes. While Auckland has stock issues, we are seeking opportunities out of the prime sites to find the right fit for clients. Secondary stock in growth areas has given some of our investors a great opportunity to acquire and turn it into prime. We continue to seek, appraise and conclude deals for quality property across all asset classes, but industrial is the clear winner. Retail & Office Sector 😐 Understandably, retail and hospitality are battling. While Central Business District retailing isn’t doing so well (thanks covid), suburban retailing is doing better. Large format retailing with essential service tenants continue to be resilient and performing well. Retail and office tend to make up the bulk of our properties available for rent. But Viranda has excellent working relationships with leasing agents who receive our private leasing summary on a weekly basis. Essentially, this prioritises our properties to get leased – putting them on the shopping list first, to a wide marketplace. The mass return to offices after lockdown hasn’t been smooth due to the isolation criteria, but also many people like the hybrid work model. How that plays out for long-term vacancy will be interesting – personally we’ve enjoyed returning to the office to keep our team culture thriving and we suspect others will feel the same. CBD retailers will certainly be happy to welcome the office workers back. Working from home might not be good for the office sector, but at least the suburbs have capitalised on the situation. Final thoughts The FOMO attitude has abated and investors are more cautious in general. But let’s not forget, right now there is big demand for a small pool of investments. It’s also easy to see why investors are forging on with real estate – it’s still a winner for income growth and capital growth, especially when compared to term deposits. As always, everyone’s situation is unique and that’s where our conversation starts – how can we help you achieve your commercial property goals? It will always look different to the next person, but the outcome is the same – growing long-term wealth through an exciting industry.
May 11, 2022