The number of commercial and industrial property sales was subdued in 2023, as both vendors and purchasers adopted a cautious approach after a record-breaking couple of years. Uncertainty regarding the level at which interest rates would peak, given the inflationary backdrop, and concerns about a cooling economy, all weighed upon sentiment surrounding the property market.
Sales data tracked by the Colliers Research team showed the value of commercial and industrial property sales nationally to have totalled $5.21 billion in 2023, the lowest annual figure recorded in a decade. Given the time lag in the reporting of sales, the final figure is still provisional, so will likely rise but will remain significantly below the 10-year average of $9.33 billion.
The volume of sales also fell to a multi-year low, with the provisional data showing just under 2,500 transactions taking place over the year, down by 23 per cent from the 2022 total. Industrial sector leads the way While not immune to the general slowdown in sales activity, the industrial sector’s share of overall sales, by value, continued to increase in 2023, illustrating the strong appeal of the asset class.
The total value of sales over the course of 2023 sits at a provisional value of $2.81 billion, a figure which is likely to increase to over $3 billion when figures are finalised.
The sector’s share of overall market activity, by value, has been trending upwards over recent years. Over the course of 2023, industrial property sales equated to 54 per cent of the national total, the highest annual proportion recorded.
Hawke’s Bay
Demand for local office space has escalated as businesses involved in cyclone recovery projects have secured additional space. Vacancy within prime grade premises has fallen to multi-year lows. The retail sector continues to perform well.
In Hastings, the new East Block on Heretaunga Street hospitality precinct is performing strongly. Demand for large format offerings continues to outstrip supply. Despite lower demand from the agricultural sector, industrial development activity continues at an elevated level. In the year to September 2023, building consents approving an additional 80,365sq m of industrial floorspace were issued, the highest figure recorded for a September year-end this century.
Consents for new office development were more subdued at 2,115sq m. This figure does not include the major refurbishment project at 180-190 Dalton Street (pictured) being progressed
by new owners Wallace Development Company, which will increase Napier’s A-grade inventory by 8,400sq m.
Elevated demand for office space has resulted in upward pressure on rentals. Average prime grade face rents increased by approximately 7 per cent over the year to September 2023 to reach $385 per square metre.
Tighter market conditions at the prime end of the retail market have again exerted upward pressure on secondary grade rents, which have increased by just over 11 per cent in the year to September. Prime grade premises command rentals of between $440 and $700 per square metre.
A number of recent data releases give a strong indication that current interest rate settings are having the impact desired by the Reserve Bank of New Zealand (RBNZ). The economy has slowed, and inflation is easing. Therefore, there is growing confidence that interest rates have now peaked, and the RBNZ will possibly begin an easing cycle in the second half of 2024 or early 2025.
Consequently, the property market is likely to enter a new growth phase, with sales activity rebounding from the subdued levels apparent over 2023. The stabilisation in interest rates and prospects of an easing in monetary policy will result in the removal of some major obstacles that have hampered sales activity over the past year. With both property owners and investors able to value assets with greater confidence, the gap between buyer and seller expectations will reduce.
Buyer interest, which in 2023 was generally restricted to safe haven assets, will broaden as investor confidence grows, leading to an increase in sales volume. There will also be less reluctance from property owners to bring significant assets to market.
