Queenstown 2020 Commercial Property Update

Thursday 27 Feb 2020

MARKET PERFORMANCE 

The Queenstown commercial property market performed strongly in 2019 with total sales values likely to be the highest the area has seen. There were a number of high-profile, high value sales with yields reaching record lows in both the Frankton industrial and CBD commercial sectors. The market dynamics are underpinned by continued scarcity in supply, with high leasing demand fuelling strong rental growth. In particular, quality tenanted industrial property remains a sought-after commodity and vacant land values in this sector are now the highest in the country (>$1000/m²).

2020 - KEY DRIVERS & PREDICTIONS

Queenstown's yield compression tracks pretty closely to the other growth markets of NZ (Auckland, Hamilton and Tauranga). To read the latest national Research Report please click here.

Given New Zealand’s low interest rate environment, we are continuing to see momentum gains in syndicated commercial property. Higher quality assets now tend to fall in the higher value bracket (>$10m), limiting access to small to medium investors without syndication. Accordingly, the fundamentals of location, building quality and lease/tenant covenant are important to maintain with gross returns to investors in the 6% - 8% bracket (return on equity with bank funding leverage).

Looking forward into 2020, we see the first half of the year being strong off the back of the 2019 momentum. As always with an election year (set for 19th September 2020), investors do tend to take a breath in times of political uncertainty, but historically this has proven relatively short-lived. We may also see some continued tightening in funding for new commercial projects due in part to the compliance pressures faced by the banking sector.

Despite this, we predict investor confidence will remain high in all commercial asset classes on the back of the Otago region’s impressive population and capital growth statistics. Over the longer term, the fundamentals for the region’s continued growth remain strong.