With 2024 right around the corner, the commercial property market finds itself balancing a mix of excitement and uncertainty. 

Several factors are fuelling change, from an evolving office environment to a new government to high interest rates and insurance premiums.  

As we prepare for the new year ahead, here are some things to look out for.  

Demand for Industrial and Logistics Spaces 

Changing retail consumer behaviour has led to high demand for online shopping. That’s why growing businesses are looking for industrial and logistics spaces to claim the excess demand.  

Companies are also investing in more resilient supply chains, leading to greater demand for local warehousing and logistics facilities.  

The typical businesses requiring these properties are involved in e-commerce, logistics, warehouse, storage, or manufacturing. These are stable companies with a well-established corporate structure. 

For commercial property investors, it’s important to have the right advice before investing in an industrial property, as it is very different from an office building or residential property.  

Popularity of Hybrid Workplaces  

The typical office work environment has changed since the global pandemic. Offices were left silent and empty for months on end, and businesses have adapted. The result is that working remotely for part of the week seems to have become a permanent feature of many workplaces. A popular one, too. 

A hybrid workplace can look like fewer assigned desks, replaced by hot desks and multi-functional areas driven by technology where employees can plug in and work wherever they find it most productive. This looks like booths for meetings or focused work, break-out areas, room for couches and project rooms for collaboration.  

Commercial property investors need to keep their eye out for this continued trend and adapt.  

What the New Government Means 

A new government coalition has been formed and will steer New Zealand’s property market for the next few years. So, what does this coalition deal mean for the commercial property market?  

Arguably, the biggest gain for commercial property investors from the election of a new government is the faster timeline for full reinstatement of mortgage interest deductibility. National has updated its plans, increasing tax deductibility in 2024/2025 from 50% to 60% and from 75% to 100% in 2025/2026. This can mean smaller tax bills for commercial property investors.  

Secondly, RBNZ was given a dual mandate back in 2018 to promote price stability and support maximum employment. The National-led coalition wants this changed so that RBNZ focuses completely on driving down the inflation rate. This could potentially mean a higher or sustained OCR to bring down inflation.  

Thirdly, decreased income tax rates mean more money in Kiwis’ pockets, which could mean increased demand for commercial properties.  

High-Interest Rates and Insurance Premiums 

Inflation rates have risen globally, including here in New Zealand. RBNZ has employed aggressive tightening of monetary policy to attempt to bring down these inflation rates. However, the flow-on effect of an increase in OCR is an increase in retail interest rates.  

A decision was made in November to maintain the 5.5% OCR, a sign that interest rates for commercial property investors aren’t coming down anytime soon. 

What does this mean for commercial property investors?  

For investors, higher interest rates reduce potential returns on their investments but also makes investing into new assets harder as lending is stricter.  

The immediate impact is felt by investors who have taken out debt financing with a variable interest rate. At the same time, investors entering the commercial property market may face higher loan repayments due to the high-interest rates. The heightened costs mean a dampened demand, which can put downward pressure on property values.  

Another cost to look out for is rising insurance premiums. We have seen increases as much as 35% in the insurance premiums. It pays to ensure that you have time to look at multiple options.  

Inflation, coupled with extreme weather events such as the Auckland floods and Cyclone Gabrielle, meaning more payouts, higher operational costs, and higher insurance risk for insurance companies, putting upward pressure on insurance premiums.  

Get Ready for 2024 With Azure 

The commercial property market is poised for its fair share of changes and opportunities.  

To navigate these uncertainties and come out on top, commercial property investors need proper preparation and actionable advice.  

At Azure, we are here to provide the support you need to get the best out of your property in 2024. 

Contact our experienced team at Azure.