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Investment in Auckland’s CBD will survive

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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Comments from our readers

On 12 October 2020 at 4:41 pm Winka said:
Quite a number of landlords have offered lease holidays, so they won't be receiving 5% yields?

Yes, I agree that Americas cup revenue is likely to give a boost to the CBD, plus a bit of government (central & local) financial assistance

However, I do agree that office humans like the "personal interaction" and I see it a bit different than office-humans remaining in CBD offices.

Serviced offices are going to take over.
Office people do not need to have the "personal interaction" five days per week.

Quality serviced offices are going to fill the void even more now in the "new normal."

Look at Servcorp site for an example.
Lovely receptionist, lovely property, lovely boardroom, lovely coffee & cakes.
No big rental so that offsets into a larger bottom line business profits without needing to do extra work!

Staff personal interactions each week or two, dodge the traffic by working at home (less downtime) and so on.

The new normal is going to cancel out the normal recovery of past downturns.

The likes of Servcorp should be able to take over even more if they market themselves so

Most of the week, old office type staff already have the new programs to assist their new style of home-based work,and then they just meet once in a while in their lovely serviced offices to satisfy the people interaction?

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Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.15 3.25 3.39
ANZ Special - 2.55 2.69 2.79
ASB Bank 4.45 2.55 2.69 2.79
Bluestone 3.49 3.49 3.49 3.49
BNZ - Classic - 2.55 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.15 3.29 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online 2.95 1.99 2.35 2.45
Heretaunga Building Society 4.99 3.50 3.40 -
HSBC Premier 4.49 2.45 2.60 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.45 2.65 2.79
Kainga Ora 4.43 2.93 3.07 3.24
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 3.30 3.54 3.54
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.79 2.79
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
Lender Flt 1yr 2yr 3yr
SBS Bank 4.54 3.05 2.99 2.99
SBS Bank Special - 2.55 2.49 2.49
The Co-operative Bank - First Home Special - - - -
The Co-operative Bank - Owner Occ 4.40 2.55 2.69 2.79
The Co-operative Bank - Standard 4.40 3.05 3.19 3.29
TSB Bank 5.34 3.29 3.45 3.59
TSB Special 4.54 2.49 2.65 2.79
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 ▼3.09 3.29 3.39
Westpac - Offset 4.59 - - -
Westpac Special - ▼2.49 2.69 2.79
Median 4.55 2.94 2.99 2.80

Last updated: 23 October 2020 5:00am

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