Queenstown property market resilient despite uncertainty

Thursday 12 Nov 2020

Queenstown’s property market has changed significantly in the wake of the global Covid-19 pandemic but has proved remarkably resilient, with confidence growing again and big infrastructure spending in the pipeline.

That’s according to our newly released Colliers International Otago Market Review and Outlook 2020-2021, which covers the key markets of Queenstown, Wanaka, Cromwell and Dunedin.

Heather Beard, Registered Valuer and Consultant at the Queenstown Colliers office, says the fundamental driver of Queenstown’s growth over the past decade has been tourism.

“Queenstown’s property market has been impacted by border closures and economic uncertainty since the Covid-19 lockdown, with questions remaining around when international tourism may resume.

“The silver lining is government investment in the region’s much-needed infrastructure projects. The $85 million earmarked for ‘shovel ready’ projects in Queenstown will assist in recovery and further growth following the international border re-opening.

“In the short term, reliance on domestic travel and related spending levels, plus a tightening on funding, will likely continue to create a degree of uncertainty in the property market.

“However, the Queenstown property market has proved to be remarkably resilient with current market sentiment and council population growth projections showing confidence in Queenstown’s longer-term prospects.”

Beard says some overall market trends include low interest rates driving property investment, as investors seek returns, and a negative OCR predicted from early 2021.

Colliers Otago Managing Director, James O’Hagan, says an expected downturn in the housing market did not materialise – at least not to the extent predicted.

“Sales volumes are down for the year due to periods of inactivity, but market transactions have been picking up significantly post-lockdown.

“The market has been buoyed by low interest rates and pent-up demand, particularly from first home buyers, holiday home investors and people relocating for lifestyle reasons.

In Queenstown’s commercial property market, Beard says rental affordability has been a hot topic with the absence of international tourists in the CBD.

“New leasing activity appears to be at pre-Covid levels and demand in the prime retail area is continuing, with some tenants taking the opportunity to reposition or enter the market.

Beard says the industrial sector remains a sought-after investment in Queenstown and nationwide, as investors gravitate towards ‘essential business’ tenants.

In the tourism sector, two new CBD hotels have recently been completed while four further hotels are under construction and one has been put on hold. Queenstown’s hotel supply is now 3,831 rooms, with a further 569 under construction, 2,460 consented and 1,481 in the consent process.

Elsewhere in Otago:

  • Wanaka’s residential property market has experienced significant growth over the past five to seven years and appears to be maintaining value levels post-Covid, despite recent predictions;
  • Wanaka’s commercial property is primarily underpinned by the local market, with a limited number of tourism operators in the town centre. As a result, the withdrawal of international tourism and ongoing border closures appear to be causing a less significant impact on Wanaka than they have on Queenstown;
  • Cromwell’s residential and lifestyle property markets are performing strongly, fuelled by growth in the rural/agribusiness, viticulture, horticulture and commercial sectors;
  • Cromwell also has significant new commercial supply in the pipeline, while there is a shortage of good quality industrial space, with owner-occupiers leading the market;
  • Dunedin’s residential property values are holding at a high level with limited volume of stock available. A trend of yield compression is continuing in the residential investment market, as investors seek higher returns through acquiring property assets;
  • Dunedin’s commercial property market has also been marked by this trend, with good tenant and investor demand for office stock. With cruise ship activity down due to border closures, limited upcoming events and subdued domestic tourism, the tourism, retail and hospitality markets may see some consolidation in the short term.

Further regional insights are available in the Colliers International’s full Otago Market Review and Outlook 2020-2021.