Market Confidence Will Dictate Future Development Projects

Commercial property owners and developers warn that planned development projects are likely to be postponed or cancelled as market confidence declines. “We have growing concerns that property owners are being forced to bear the brunt of the COVID-19 cashflow crisis, putting stress on the feasibility of development projects”, says Property Council New Zealand chief executive Leonie Freeman.

Property Council New Zealand recently conducted a survey of its property owner and developer members that showed across a planned project pipeline (being developments that are currently in the planning process, pre-construction) worth several billion dollars, 60% of projects were considered uncertain given the current economic climate.

“These statistics demonstrate the developer’s natural reaction to uncertainty. This outcome could have an enormous impact on the construction sector and the wider New Zealand economy”, says Freeman.

“Industrial and commercial property developers were most cautious, signalling that 70% of projects were now uncertain, while residential developers indicated that around half of all projects were now uncertain.

“We have very real concerns for the impact this may have on the construction industry and related sectors. There is great uncertainty in the market, ranging from the broad economic climate through to funding, future demand and many other factors.

“Another issue causing pressure is around tenants’ inability to pay their rent. This loss of income will force landlords to reassess their planned maintenance and developments, causing projects to be postponed or cancelled.

“We saw a similar affect in Christchurch post-quakes, where the Government’s consistent delays to major anchor projects caused private developers to hold off on their investment in the city. It is only now, nearly a decade later, that the city was finally starting to get on its feet.

“The last thing we need right now is for developers to pull out of projects that could have seen the construction sector and wider economy supported during the post-covid recovery”, says Freeman.

Naylor Love chief executive, Rick Herd, said that the vertical and residential construction sectors that make up over 80% of the entire construction industry is also about 80% funded by the private sector, property owners.

“Unless the Government finds the means to support and stimulate private sector construction, we will see a collapse of the vertical construction sector on a greater scale than occurred post the 1987 stock market crash. This will mean the collapse of numerous business, particularly SMEs and job losses for in excess of 100 thousand people.

He added that the Government’s offer of $100,000 cheap loans to SMEs is short sighted.

“If these SMEs operate in the vertical construction sector they will probably collapse, meaning an enormous burden of bad debt to the taxpayer. Why not look to the longer-term and use this money to stimulate private sector building investment and construction for a long-term sustainable commercial property and construction industry, rather than short-term pain relief”, says Herd.

"We need to see some positive action in the next two or three weeks or month to see what actually [the Government is] going to do to stimulate that private sector investment."

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