CRE Market Commentary
As New Zealand enters Alert Level 1 and a sense of normality returns to the country, we want to share our observations currently impacting commercial real estate.
- The latest Colliers International Research Report June 2020 highlights that 82% of landlords have negotiated a change in rental payments with their tenants in respect of the disruption caused by the COVID lockdown period.
- The Colliers report goes on to highlight the history of the resilience of the industrial sector in weathering uncertainty and market disruptions. Factors that support resilience include; manufacturing and construction, which are at the heart of the industrial sector, accounting for 20% of NZ’s $300bn economy; accelerated consumer adoption of click-and-collect e-commerce services driving demand in the transport, warehousing and postal industries; and rising Government spending on public infrastructure for transport, rail, and ‘shovel ready’ projects.
- Goodman Property Trust posted a profit of $284.4m in the 12 months to March 31, which was down on last year due to lower revaluation gains. The listed industrial fund has headroom to breaching debt covenants with an industry-low 18.9% gearing. Chief executive John Dakin said, on the state of the portfolio, “A secure and efficient supply chain, which includes warehouse and logistics facilities close to consumers, has proven to be essential for a modern city to function and grow. Through the lockdown, we saw a surge in online demand, which was already happening internationally. We’re starting to see the early signs of that in New Zealand and we think it is just going to accelerate materially,” said Dakin. Goodman expects the pandemic to increase demand for quality industrial locations.
- Chris Caton, the global head of research for Prologis, the largest owner of industrial space with over 46m sqm in the U.S. and nearly $130bn of assets under management, said that a single percentage point increase in online shopping for retail purchases could create enough demand to fill 4.6m sqm of new warehouse space.
- Re-leased have shared their latest NZ rent collection report for May 2020. Their rent reconciliation report shows the percentage of the monthly rent collected 27 days after the 1st of the month. A summary across sectors highlighted that the industrial sector collected the highest at 78% of May rent, the office sector collected 67%, followed by the retail sector, which collected 46%. The overall reported rent collection rate was 63% across all sectors.
- Last week, RBNZ Governor Orr reiterated increasing QE would be the first option should the RBNZ decide more monetary stimulus is needed. With as much as $60bn in RBNZ QE by next May, the RBNZ “have a long run-up at the moment.”
- The Government has announced a temporary law change to force commercial landlords and tenants to consider COVID-19 in disputes over rent issues. The law change only affects a small number of parties who have previously not engaged in proactive discussions over lockdown.
- An analysis of the listed property market highlights an average loan-to-value ratio (LTV) of 30.5%. Most listed property funds have LTV limits of 45-55% before they breach debt covenants, which illustrates that NZ commercial real estate has significant headroom and downside protection should market conditions worsen.
- The advent of COVID-19 has seen increasing pressures on the office market with a shift towards working from home. However, a Colliers International workplace survey that asked respondents to rate their productivity over the lockdown period reported 52% of respondents felt their productivity decreased, 41% reported no change in productivity and 8% saw an increase in productivity when working remotely.
As the market begins to re-emerge, the Jasper team is assessing a high volume of opportunities to position ourselves and our investors to take advantage of the recovery. The current uncertain economic conditions will see investors focus on emerging growth trends within the e-commerce and logistics space, while re-prioritising risk towards fundamentals such as prominent locations, robust tenant covenants, and security of income. We look forward to introducing new and resilient investment opportunities to the platform in the coming months.
Please feel free to reach out if you would like to discuss any of the above.