New Zealand Research Report | December 2018 | Colliers International Research1

December 2018

14 Predictions for 2019

For the last monthly report of each year we provide

our top predictions for the following year. We have 14

rather than 10 predictions now due to growth in

Colliers International’s business lines. In no particular

order:

All sectors

1. Total annual sales value of commercial office,

retail and industrial property in 2019 will fall just

shy of the forecast $10 billion year of 2018. This

is due to additional legislative compliance and

potential tax changes in 2019 that will add

complexity, costs and time delays to the sales

process. Approximately 85% of the properties

that will sell in 2019 will have an asset value of

$2m or under and be highly sought after by

investors and owner-occupiers.

2. Numerous opportunities in the prop-tech space

will emerge with the release of 5G-ready

smartphones in 2019. Both landlords and

occupiers stand to benefit from the advances in

technologies that 5G unlocks. New Zealand will

be geared up but waiting in anticipation as our

5G mobile network is only expected to be

available in late 2020 at the earliest.

Office

3. The flexible workspace sector will forge ahead on

its own growth path in 2019, undergoing a period

of maturity in New Zealand. Landlords that focus

on more traditional fixed-term leasing will try to

diminish the disruption from the sector by

embracing flexible workspace initiatives like

tenant events and seminars, technology-based

building and operating solutions and customer-

centricity supported by community managers.

4. High-value office assets will receive strong

interest from offshore purchasers that entered

the New Zealand market in 2018 looking to

expand their presence, but they will face stiff

competition from new offshore entrants and

locals spurred on by strong levels of tenant

demand, rising rents and low interest rates.

Industrial

5. Industrial precincts across New Zealand will

experience an increase in occupier demand that

will require a new wave of development activity in

2019. This will lead to one of the biggest years of

uncommitted industrial developments

commencing. This will prove fruitful.

6. As local economies grow, and the Government’s

Provincial Growth Fund takes shape, the golden

triangle of distribution and logistics activity

between Auckland, Hamilton and Tauranga will

become an elongated parallelogram reaching

further north into Whangarei, south into

Palmerston North and east into Hawke’s Bay.

Retail

7. Physical retail stores capture almost 90% of

worldwide retail sales, according to eMarketer,

but it will be a challenging year ahead for many

retailers as online and offline competition mounts

and discretionary spending becomes more

selective in 2019. This will see a re-rating of retail

asset values in 2019 with those likely to

experience uplifts being the owners of assets

with supportive demographic catchments, not

overly weighted towards clothing and fashion and

those transitioning into more experiential,

entertainment and food and beverage offers.

8. Big name offshore retailers that have been

waiting in the wings will dip their toes in the New

Zealand market in 2019 with the opening of new

retail centres at Precinct Properties’ Commercial

Bay and Scentre Group’s new 277 Westfield

Newmarket centre in Auckland. It’s hard not to

expect the likes of Uniqlo, Muji, Apple and others

finally setting up stores in these flagship centres

and expanding our international retailer

presence, but will 2019 be the year we get our

first top-10 global retailer – Amazon?

New Zealand Research Report | December 2018 | Colliers International ResearchNew Zealand Research Report | December 2018 | Colliers International Research

New Zealand Key Economic Indicators – December 2018

Jun-18

(yr rate)

Jun-18

(qtr rate)

Mar-18

(qtr rate)

Q-o-Q

Change

Jun-17

(yr rate)

Y-o-Y

Change 2019F* 2020F* 2021F*

GDP Growth 2.8% 1.0% 0.5% 0.4% 2.8% 0.1% 2.9% 2.9% 3.0%

Current Account (% of GDP) -3.3% NA NA NA -2.6% -0.7% -3.5% -4.0% -4.3%

Sep-18

(yr rate)

Sep-18

(qtr rate)

Jun-18

(qtr rate)

Q-o-Q

Change

Sep-17

(yr rate)

Y-o-Y

Change 2019F* 2020F* 2021F*

CPI Inflation 1.9% 0.9% 0.4% 0.5% 1.9% 0.0% 1.8% 1.9% 2.0%

Net Migration Gain (000's) 63 14 15 0 71 -8 55 40 33

Retail Sales (ex-auto) 3.5% 0.3% 1.4% -1.1% 6.4% -2.9% 3.6% 4.3% 4.8%

Unemployment Rate 4.3% 3.9% 4.4% -0.5% 4.9% -0.6% 4.0% 4.0% 4.1%

Ocr-18

(yr rate)

Sep-18

(yr rate)

M-o-M

Change

Oct-17

(yr rate)

Y-o-Y

Change

10 Year

Average2019F* 2020F* 2021F*

Tourist Numbers Growth 4.5% 2.0% 4.3% 4.1% 0.4% 5.4% 4.5% 4.0% 4.7%

Official Cash Rate 1.75% 1.75% 0 bps 1.8% 0 bps 2.42% 1.75% 2.00% 2.50%

90 Day Bank Bill Rate 1.9% 1.9% -1 bps 1.9% -5 bps 2.6% 1.9% 2.1% 2.5%

10 Year Government Bond 2.6% 2.6% 2 bps 3.0% -35 bps 3.8% 3.1% 3.3% 3.5%

Floating Mortgage Rate 0.0% 5.9% -585 bps 5.8% -584 bps 6.1% 5.8% 5.9% 6.3%

3 Year Fixed Housing Rate 0.0% 5.1% -509 bps 5.3% -532 bps 6.2% NA NA NA

Consumer Confidence 115 118 -2% 126 -9% 120 NA NA NA

Source: NZIER, Colliers International Research *March year forecast

2

Housing

9. Residential prices in regional centres outside of

Auckland that have low unemployment and

housing supply shortages will experience further

price inflation, while Auckland will undergo an

extended period of consolidation. This will have

ripple effects throughout the development

industry. A levelling off in sales prices and rates of

sale with stubbornly high development costs will

lead to a cyclical high in deferred and abandoned

projects. This will counterproductively reduce

future supply that is needed to unlock more

affordable prices. While KiwiBuild will underwrite

certain projects and enable supply, it’s not a long-

term silver-bullet solution.

10. High house prices, positive attitudinal shifts

towards renting and rising legislative and tax

requirements on the ‘mum-and-dad’ Private

Residential Sector (PRS) in 2019 will result in

more companies entering the housing investment

market. Following on from positive offshore

experiences, this will drive purpose-built projects

for long-term renting (known as Build-to-Rent or

BTR) as well as investment vehicles and funds

undertaking large scale investments of residential

projects for Invest-to-Rent (IVR) products. While

there are only a handful of these projects

currently, the number will more than double in

2019.

Rural & Agribusiness

11. Succession planning will be the number one

influence on the rural and agribusiness sector in

2019, bringing with it a number of selling and

purchasing opportunities. The value of land

holdings and the work required are viewed

differently than in the past and now is looking like

a good opportunity to reap some of the benefits.

12. The dairy sector will step out of the limelight in

2019 as it enters a challenging period in terms of

land values challenged by higher production costs

and lower dairy payouts. Sheep and beef farming

confidence will remain strong in 2019 due to solid

export earnings driven by an accommodative

exchange rate and growing global demand.

Positivity in the Horticultural and Viticultural

sectors will take another step up in what is

already being described as a bumper year.

Finding available land in areas with the right

growing conditions will be an issue that could see

land prices rise further.

Hotels

13. New Zealand’s tourism sector continues its

strongest ever growth cycle. International visitor

arrivals will surpass the 4 million milestone by the

end of 2019. This surge in visitation numbers,

coupled with relatively low levels of new supply

entering the market, will drive record performance

for hotel assets.

14. Hotel transactional activity is anticipated to

increase in 2019 as investors take advantage of

the last five years of strong trading conditions.

Further new hotel development activity is likely to

be announced, particularly in the tourism hotspots

of Auckland & Queenstown.

How well did we do in our predictions for 2018?

Check it out on our New Zealand Research Report

December 2017.

New Zealand Research Report | December 2018 | Colliers International Research

Office

Across the entire Auckland regional office market,

flexible workspace facilities occupy around 1.7% of office

stock. By 2023, we project major flexible workspaces to

account for around 2.7%, but could be more given the

number of smaller operators and new entrants expected

over the next few years as the sector continues to grow.

In 2014, the majority of flexible workspace facilities in

Auckland (by number and square metre) were located in

the CBD. However, this has changed over time with the

majority (by number and square metre) now located

outside of the CBD and by 2023 it will be much the

same.

For more information and a national perspective, we will

be releasing our New Zealand Fixed-Term and Flexible

Workspace Report 2018 soon.

Retail

With Christmas fast approaching, retailers are preparing

for the busiest retail period of the year. Retail NZ

recently undertook a survey asking retailers their

expectations on pricing and target performance and staff

hiring intentions over the festive season.

75% of participants expect to meet or exceed targets and

25% expect not to meet targets. With improved weather

conditions, purchasing of outdoor equipment such as

garden, sport and camping supplies is expected to

increase. Also, due to the festive season a rise in food

and beverage spending is expected.

59% of participants expect prices will stay the same or

fall and 41% expect prices will rise. Some business

owners are facing cost increases which may be passed

onto consumers.

23% of retailers intend on hiring more staff over the busy

season, 59% intend on retaining current levels and 18%

intend on employing fewer staff.

Industrial

The seasonally adjusted BNZ – Business NZ

Performance of Manufacturing Index (PMI) for November

2018 was 53.5 (a PMI reading above 50.0 indicates that

manufacturing is generally expanding; below 50.0 that it

is declining). This was 1.6 points higher than September,

and the highest level of activity since May.

When comparing the BNZ – Business NZ Performance

of Manufacturing Index to J.P. Morgan Global

Manufacturing PMI, it shows New Zealand currently has

one of the highest indices. The list in order is Australia,

USA, New Zealand, Japan, Eurozone, UK and lastly

China.

3

Source: BNZ, Business NZ, J.P. Morgan

Auckland Region Flexible Workspace Stock

Source: Colliers International Research

P = provisional, F = forecast

Retail Rader – The Next Three Months

BNZ – Business NZ Performance of

Manufacturing Index (PMI) & J.P. Morgan Global

Manufacturing PMI

0

10

20

30

40

50

60

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

20

14

20

15

20

16

20

17

20

18

P

20

19

F

20

20

F

20

23

F

Nu

mb

er o

f Facilitie

s

Flo

or

Are

a (

m²)

CBD Metropolitan Number of Auckland Facilities

Source: Retail Radar, Retail NZ

25%

75%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sep

-15

Dec

-15

Mar

-16

Jun

-16

Sep

-16

Dec

-16

Mar

-17

Jun

-17

Sep

-17

Dec

-17

Mar

-18

Jun

-18

Sep

-18

Not Meet Targets Meet or Exceed Targets

59%

41%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Sep

-15

Dec

-15

Mar

-16

Jun

-16

Sep

-16

Dec

-16

Mar

-17

Jun

-17

Sep

-17

Dec

-17

Mar

-18

Jun

-18

Sep

-18

Prices will Stay the Same or Fall Prices will Rise

2021F

to

2022F

(RHS)

New Zealand Research Report | December 2018 | Colliers International ResearchNew Zealand Research Report | December 2018 | Colliers International Research

Source: Colliers International Research

*Combination of industrial office & warehouse at a ratio of 20:80.

4

Annual Market Indicator Review – Q3 2018

Recent Commercial Property Sales

Alan McMahon

National Director

Strategic Consulting

David White

Director

Strategic Consulting

Chris Farhi

Director

Strategic Consulting

For more information contact:

Chris Dibble

Director

Research & Communications

Elena Christodoulou

Research Analyst

Emily Duncan

Research Analyst

Josh Lee

Research Analyst

Disclaimer: Whilst all care has been taken to provide reasonably accurate information, Colliers International cannot guarantee the validity of all data and

information utilised in preparing this research. Accordingly Colliers International New Zealand Ltd, do not make any representation of warranty, expressed

or implied, as to the accuracy or completeness of the content contained herein and no legal liability is to be assumed or implied with respect thereto.

© All content is Copyright Colliers International New Zealand Ltd 2018, Licensed REAA 2008 and may not be reproduced without expressed permission.

Caity Pask

Senior Analyst

Strategic Consulting

Vernon Sequeira

Analyst

Strategic Consulting

Colliers International

Level 27, SAP

Tower

151 Queen Street

Auckland

+64 9 358 1888

614-616 Great South Road, Greenlane

Auckland | $11,600,000 | 3.1%

Property Sector

Prime Rents

(% Change)

Prime Capital Values

(% Change)Vacancy Rate

12-Months to Sep-18 12-Months to Sep-18 2017 2018

Office Net Face Based on Net Face Overall (June)

Auckland CBD 3.0% 11.1% 5.7% 6.2%

Office Gross Face Based on Gross Face Overall (June)

Wellington CBD 5.9% 9.9% 7.8% 7.7%

Office Net Face Based on Net Face Overall (September)

Auckland Metropolitan 3.1% 8.7% 5.1% 6.7%

Industrial* Net Face Based on Net Face Overall (August)

Auckland 10.5% 17.4% 1.9% 1.7%

Industrial* Gross Face Based on Net Face Overall (November)

Wellington 4.7% 7.1% 2.9% (2016) 2.1% (2017)

Industrial* Net Face Based on Net Face Overall (September)

Christchurch 0.0% 4.2% 1.9% (2016) N/A

Retail Net Face Based on Net Face Overall (June)

Auckland CBD 0.0% 0.0% 3.1% 2.5%

Retail Gross Face Based on Net Face Overall (June)

Wellington CBD 2.5% 4.3% 5.6% 6.8%

1/2 Kitchener Street, Central

Auckland | $3,500,000 | 6.4%4 Farmhouse Lane, St Johns

Auckland | $4,350,000 | Vacant