What impact will NZ’s latest budget have on commercial property?

The Government’s economic recovery budget is New Zealand’s biggest ever and offers something for everyone from a commercial property perspective.

June 19, 2020

The Government's budget – delivered in May, on the day the country reduced COVID-19 restrictions – is New Zealand's largest-ever. It is a direct response to the crisis, as it also includes a NZ$50 billion recovery fund.

Substantial funds have been allocated to support businesses, education and training, infrastructure, housing and the environment, along with support to sectors like tourism, primary industry, and transport. The help comes on the back of another Government stimulus package, announced in March. This included the reintroduction of depreciation deduction on commercial and industrial property, valued at NZ$2.1 billion.

From a commercial property perspective, this has the potential to be a far-reaching budget. It arguably offers something for everyone to grasp hold onto, and leverage from, as we look to recover as a country.

As part of the new budget, tenants will receive crucial financial business life-support in the short-term which gives the opportunity and some more time to see what the next normal looks like.

There is a prospect to focus on greater training and a desire to enhance what New Zealanders can offer. It also specifically recognises the disproportional hardship of the tourism industry. Combined, these factors indirectly support landlords’ rental income streams and increase the chances of tenancies continuing.

For developers, the impact of infrastructure spend on longer-term returns will create new growth locations and open up more sites over time. It also potentially supports the investment case for existing assets located within proximity to upgraded transport.

Although it is always tempting to get bogged down in the detail domestically, at an international level, New Zealand has crafted a unique global position in having opened up the economy with COVID-19 seemingly nearly eliminated.

There is a clear opportunity then for New Zealand’s property sector to take advantage of its envied reputation, and tap into it from a property investment perspective.

According to recent commercial property research from JLL, it is quite possible that many outlets, including corporate CEOs and data pundits, are overestimating the impact of COVID-19 on Asia Pacific real estate. This means the market could actually be in a far better shape than what many have predicted.

That is not to say that COVID-19 will not impact many parts of the market to varying degrees of severity in the future months. A greater amount of information will be essential at a micro-market level with a sector-specific lens, rather than looking at it as a whole.

The next normal, as during any economic crisis, will necessitate an individual property-centric model of assessment, no matter what sector. In times like these, the unique nature of property assets comes to the fore.

Recovery in our industry must be judged against activity in the property sector. The next three to six months will provide much more information about the future of the market than the last two months have.

So then, what is the most logical way forward for New Zealand?

Property is a long-term asset class; always has been, always will be. My advice is to take stock of the situation, explore options calmly, and be as objective as possible in the short term. Give the New Zealand Government’s action some time to take effect and hopefully defeat COVID-19 domestically.