Deals delayed but not disappearing following Covid resurgence


The return to Covid-19 enforced restrictions will be temporarily disruptive, but demand will remain buoyant and will likely make a strong return upon entering lower Alert Levels, Colliers reports

Now with a previous lockdown experience to review, the impacts on supply seem to far outweigh the impacts on demand in these situations, and for many, but not all, there is a lot of positives.

We have entered the latest lockdown in a strong position with lots of momentum which will support many of the property sector’s underlying fundamentals.

This can be seen in the way that post New Zealand’s first national lockdown, the economy rebounded strongly, unemployment reduced to just 4% and consumer spending surged across many sectors.

Recent trends underpin encouraging outlook

As lockdown measures were eased in 2020, it became evident that demand, bolstered by a low interest rate environment, was accelerating. Investor confidence in the June quarter of 2021 reached the highest levels recorded in our investor sentiment survey – ever.

A strong lift in transactional activity followed, which has led to one of the strongest starts to annual transaction activity on record.

The strength and momentum of the economy going into the lockdown, and the continuation (for now) of a low interest rate environment, provide an encouraging outlook for property markets as and when social and economic restrictions are eased.

Anecdotal evidence from agency teams highlights that a vast majority of transactions which were agreed prior to the latest lockdown are progressing where possible.

Transactions which have not progressed yet generally reflect Covid-19 enforced technical constraints, such as the inability to physically inspect premises or get the necessary documentation, as opposed to any or real lack of demand.

And while the leasing market has not been as active as the sales market due to restrictions on inspections, the recent announcement of future moves by Deloitte and BNZ in Auckland’s CBD, the latter being the largest office leasing commitment this decade, are a strong illustration of confidence in the resumption of major office occupation to come.

A similar picture across the Asia Pacific region

A recent report from Colliers’ Asia Pacific research division (Titled: A brave new world: investing beyond the momentary squall) shows that it is not only New Zealand that has witnessed accelerating activity in commercial and industrial property markets.

The report finds that investment volumes are on the rise across almost all markets and sectors, as capital flowing into real estate asset strategies continues to increase.

Transaction volumes across Asia Pacific have surged to new heights in the first half of 2021, as contracted volumes totalled US$103 billion – up 28% compared to the first half of last year, and exceeding the previous record high set in H1 2019 by 2%.

While every market in the region is recovering at varying speeds, China, Australia and Korea have all set new record highs in H1 2021.

Across the Asia Pacific, Colliers forecasts a further acceleration in transactional activity. Deal pipelines are growing, with a number of high-profile deals likely to close before the year ends.

Current full-year sales volumes in Asia Pacific are forecast to exceed 2020 volumes by around 15% to 20%, and this is likely to set a new record at around US$210 billion.

Encouraging signs for 2021, but some cautiousness expected

The outlook for many parts of New Zealand’s commercial and industrial property markets over the next 12 months is encouraging.

The reimposition of lockdown conditions and the uncertainty regarding exactly how long restrictions will be maintained in Auckland will clearly disrupt activity.

However, the benefit of experience gained over the last year will help to mitigate many of the potential negative expectations that appeared from the previous lockdown. This, along with the fact that restrictions are already being eased across a majority of the country, is likely to see the slowdown in market activity being less pronounced this time than it was in 2020.

While sentiment and activity are seemingly in a better position, cautious and confident will likely be the approach by many investors ahead despite the current positive demand and supply dynamics.

Investors will be cognisant of the projections of the increase in the official cash rate ahead as the Reserve Bank looks to tackle inflation, house price surges and keep employment levels strong.

Given increases in interest rates are likely to be incrementally adjusted over the short term and that the moves are from record low rates, the impact upon market activity should be limited in the short-term providing a clear signal for an active market ahead.