Demand for office space in New Zealand declines further

The start of 2022 saw a deterioration in new tenants looking to rent commercial property in New Zealand, with further declines in demand for office and retail spaces. New investor enquiries across commercial office and retail spaces also declined as a result, according to the latest Global Commercial Property Monitor, Q1 2022

Respondents to the survey noted further declines in demand for office space – down from a net balance of -13% in Q4 2021 to -18% in Q1 2022. The retail sector in New Zealand also saw particularly negative feedback, with a net balance of -59% of respondents noting a decline in demand – the sixteenth consecutive negative quarter so far. Despite the gloomy outlook, respondents noted that they’d seen more demand in industrial properties (+32%), but the pace of this renewed interest had slowed slightly since the previous quarter (+52%).

Looking at commercial property as a whole, respondents reported that occupier demand had slipped back into negative territory – with -15% saying they’d seen lesser demand from tenants in Q1 22 than the flat rate of +1% in Q4 2021.

Unsurprisingly, investor enquiries (at the all-sector level) have fallen with a net balance of -18% saying they’d seen fewer investors contact them about commercial property opportunities – the first time since Q3 2020. The only silver lining within these figures was that investor enquiries remained positive for new industrial property (+15) – signalling that confidence remained in the development of new factories, energy plants and warehouses. 

Rental expectations were more positive – particularly as the economy returns to some normality over the next twelve months. Across all sectors, a net balance of +16% of respondents said rents would increase over the coming twelve months – while retail (-35%) remained negative, the survey revealed that office (+18%) and industrial (+65%) uses would increase.

Most of the respondents’ assessment of the commercial property market in New Zealand indicated that it was in an early stage of a downturn for Q1 2022 – with only 27% suggesting it was in a stage of upturn or peak. 

Tarrant Parsons, RICS Economist, said:

“The latest results across New Zealand show sentiment deteriorating over the quarter, with COVID-19 associated disruption singled out as a significant impediment to market activity by respondents.

“Nevertheless, forward looking indicators across the prime industrial and office sectors appear quite resilient, pointing to a positive outlook for both rents and capital values over the year ahead.

“By way of contrast, the retail sector remains a particularly challenging area of the market, with near-term expectations deteriorating in the Q1 feedback.”

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