Ch-Ch-Ch-Ch Changes In Commercial Property. Turn And Face The Strange

• Though once thriving, commercial property has not been immune to the recent economic downturn brought about from the RBNZ’s heavy handed hikes. Property values, rental indices, and sales volumes have all suffered declines, while vacancies have risen
• But the downturn in commercial property has not solely been interest rate related. Shifts in behaviour and demand, from increased hybrid working and online retailing have changed the game for commercial property.
• Looking forward, the outlook is for a mixed recovery across commercial property. A lower interest rate environment will drive the recovery in part. But the structural changes in demand will continue to exert pressure and weigh on different sectors with varying impacts.

We’ve spent a lot of time talking about the housing market recently and figured it was time for a discussion on commercial property. Much like the housing market, commercial property has suffered over the past few years. Up until the latter part of 2021, commercial property was performing well. Property values even appreciated as much as 18% in the year to September 2021. But not long after, we saw property prices plummet just shy of 10% at the start of 2023.

In part, the downturn across commercial property has been a result of the RBNZ’s heavy handed hikes. High interest rates have crushed investor appetite. While tough financial conditions have forced many businesses to downsize or close shop entirely. A walk down Broadway, Queen St or even Courtenay Place confirms as much. And with lower demand, plus increased vacancies, commercial property values and sales have taken a nosedive.

However, the recent downturn in commercial property goes beyond a story of high interest rates. Since Covid, and the lockdowns that followed, the commercial property landscape has seen some big behavioural shifts that have weakened demand further. Working from home started as an order, transitioned to a choice, and now for many has become their god given right. And then there’s the rising popularity of online shopping that has taken off since the pandemic. Both trends have been major developments, changing the state of play and outlook for commercial property.

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