May 2020 Commercial Newsletter

As we start stage 2 of the lockdown, things are still very confused on what the future will bring. I have tried to read all the reports and listen to all the experts who are supposedly in the know, how we will come out of this, but everyone has a different view, with no real consensus being reached. The media are very negative about what the future will bring, but we will come out of this and the world will keep on spinning on its axis.

Tourism has taken a huge hit and until we have international travel again things are going to be really tough for that sector. There will be tenant casualties in the retail and hospitality industries, but many of these businesses were possibly in a very tenuous financial position prior to the lockdown and may not have survived the winter. The number of landlords I have spoken to have given their tenants a discount on their current rent, rates, and insurance, to help them through this difficult time. The Government was making noises about getting involved with the commercial market for both landlords and tenants, but this dialog seems to have diminished over the last couple of weeks. I caught up with an article written by Sir Bob Jones. He was very critical of any Government interference in the commercial real estate market and considered that the current situation is, although out of the ordinary, is an everyday occurrence. Where a tenant is distressed, this should be managed by the property owner.

My take on the market is that it will continue to be strong in Dunedin for well-tenanted property. I believe yields will remain low for these properties between 6% and 7%, and that when marketed correctly they will be sought after, and receive multiple offers.  

There are still a number of investors in the market place who have cash in the bank at 2% or 3% less tax who will buy the right property with a secure tenant so they can maximise their cash returns. Of course, commercial building owners can now depreciate their buildings at 2% per annum from 1 April 2020. It will be interesting how long the depreciation rule is in place, The IRD will claw back any depreciation claimed on any increase in value from the original purchase price. I am not sure where yields are going to go for the less desirable property but would expect them to creep upwards while our investors decide what is happening to the market in the medium term.  My associate Jacquie Sutton has been fielding a number of inquiries to lease property over the last 6 weeks, which is an encouraging sign going forward.

In short, I don’t believe anyone can predict what the future will hold. We can do all the star gazing we like without any firm conclusions, but the sun will come up tomorrow, and being kiwis we will prosper sooner rather than later.

I have included with this newsletter vacancy rates for George St as at the 1 May 2020 supplied by Adam Binns Commercial (Click on Link to view). Also included are recorded sales from 1 December 2019 YTD (Click On Link to View). Lastly a link to a recent article on talking about new commercial developments in NZ (Click here to view link)

Keep Safe. 

Kind regards,