Investment in Auckland’s CBD will survive

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Commercial property investors are not going to abandon Auckland’s CBD in the wake of the Covid-19 lockdowns, according to a specialist property financier.

Monday, October 12th 2020, 10:17AM 1 Comment

by The Landlord

NZMS director James Kellow

The Super City’s CBD has been hit by not just Covid’19’s economic fall-out, but by the City Rail Link and other major infrastructure projects which have closed off large parts of the CBD.

With the streets packed full of orange cones and some companies switching out from office space to flexible work arrangements, there are some concerns about the CBD’s future.

However, New Zealand Mortgages & Securities (NZMS) director James Kellow has a more positive view of the outlook for the CBD going forward.

He says downtown Auckland will bounce back and continue to reinvent itself as it always has with, first up, the America’s Cup at the end of summer set to give a sugar boost to it.

“Then once the $5b City Rail Link is completed in late 2024, Auckland will see some development of convenience retail and the likes around the new underground train stations and more residential conversion of 1990s commercial offices.”

While some believe that 2020 may change work habits forever with many more people working from home, Kellow believes the need for quality commercial office space will not diminish.

Serious businesses can’t simply exchange their leases for the kitchen table as they need the personal interaction, workplace engagement and sharing of ideas that comes with an office, he says.

“They’ll keep demanding high-quality, well located office space and developers will keep building it with obsolete buildings then repurposed.”

That’s one reason why commercial property owners and investors are not going to abandon the CBD. But another is a lack of viable alternative investment options for their money.

Kellow says property asset values continue to increase and while rental yields are now well below 5%, that’s still considerably higher than bank deposit rates which are converging on zero.

“We’re not seeing headlines about big buildings in the central city changing ownership, because they’re not for sale. So funds and property syndications are struggling to secure significant product in the CBD.

“They know advertising a good return in the current environment will see ‘mum and dad’ investors flock to solid ‘bricks and mortar’ security. But there’s just not the stock as property owners don’t want to sell.”

Many landlords have taken a hit this year, but the good ones will survive, knowing that flexibility trumps vacant premises, while lazy or greedy landlords are most at risk of losing tenants, he says.

“Landlords are having to give many tenants a leg-up but at the same time they know their yielding asset continues to appreciate.

“The medium to long-term lease income profile remains strong, and of course business and consumer confidence eventually returns.”

Kellow adds that as New Zealand heads into a post-Covid economic recovery, two things weigh in the central city’s favour: domestic spending and Government investment.

Further, with Auckland’s commercial capital the shopfront of New Zealand’s fastest growing and largest region, it will always attract significant council and government investment, he says.

“The Government is now keener than ever to spend to stimulate economic activity. This should involve funding worthwhile CBD capital projects in Auckland Council’s City Centre Masterplan which have been deferred for years.”

Tags: Auckland commercial property coronavirus Covid-19 government investment landlords listed property NZMS property investment property syndicate property values supply tenants yield

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