Real estate 2020 – building the future

A paper released recently by international consultants PwC exploring probable changes in the commercial real estate landscape as the industry evolves to remain relevant in line with rapid economic and social change, gives food for thought for agencies in New Zealand.

The Real Estate 2020 – building the future report talks about the commercial real estate built environment in the advanced economies of the world undergoing change in response to the well-identified drivers of technology, demographics and environmental issues. (See report attached)

Bayleys national commercial and industrial director John Church concurs that by 2020, the commercial and industrial property market in New Zealand will have a different vibe, with potentially a broader range of opportunities, new value drivers, and an evolving stock and buyer profile.

“How the commercial and industrial property sector adapts to twists and turns in both the global and domestic investment environment will ultimately determine New Zealand’s appeal to investors and portfolio managers,” Mr Church says.

“We are fielding strong and intensified interest in our property market from offshore investors. New Zealand’s economic profile, political stability and perceived value-for-money property arena are not going unnoticed.

“Every week we see evidence that global real estate trends are changing, whether we’re talking about a flow of investment money out of Asia, or confirmation that the Australian commercial property market is overheating – as pointed out by the Australian Financial Review recently.

“The global commercial and industrial property playing field is evolving and we need to be ahead of the curve.”

PwC director Chris Money says New Zealand is not insulated from global trends and it cannot afford to be complacent about international commercial property dynamics.

“New Zealand relies in part on global funding – for debt and to a degree, equity – and is increasingly a part of the global market,” Mr Money says.

PwC’s six core real estate investment predictions outlined in the Real Estate 2020 report are:

• the global investable real estate universe will expand substantially;
• fast-growing cities will present a wider range of risk and return opportunities;
• technology, innovation and sustainability will be key drivers for value;
• collaborating with governments will become more important;
• competition for prime assets will intensify further and the investment community will need to think laterally to earn attractive returns; and
• a broader range of risks will emerge.

One of the points made in the report is the need for real estate organisations to adapt early to survive and prosper in a changing property industry environment and for specialists to emerge.

Mr Church says Bayleys’ specialist sectoral approach to commercial and industrial real estate business allows for deeper knowledge and expertise among agents, and a heightened service for their clients.

“The PwC report reaffirmed that specialist expertise will rise to the top and those with the ability to clearly identify trends ahead of the market will shine,” Mr Church says.

“Niche players, who focus on a subsector, yet foster a broad and intelligent working knowledge of the wider commercial and industrial property landscape, can add tangible value to real estate business.

“There are different dynamics at play across and within the commercial and industrial field. You really cannot effectively be ‘all things to all people.’

“Having specialists working in the fields of syndications, hospitality, tourism, retail, project development, business sales and so on enables us to hone in on client needs and expectations – with clarity.”

The report emphasises that while technology is already impacting real estate dynamics, by 2020, it will have effectively reconfigured entire sectors. Technology will have become “mission-critical” and “If real estate players don’t understand new value drivers, they’ll be at a competitive disadvantage.”

“As the virtual world expands, the commercial property landscape as we know it will morph, too,” Mr Church says.

“Some property will become superfluous – think physical bank branches – while others will simply become uneconomic.

“Meanwhile, the impact of online retailing and our expectations and demand for condensed delivery times will change warehousing requirements, and the rise of telecommuting will challenge an established and conventional office sector,” Mr Church said.

Whether the competition for prime assets in New Zealand will intensify to the point where the investment community will have to radically alter its returns strategy is up for debate.

“We are already in a cycle of competition for prime assets,” Mr Money says.

“This has been driven by a wide range of factors including the impact of the Canterbury earthquakes on the commercial and industrial landscape in Christchurch and in other parts of the country; demand in our primary sectors and ‘upstream integration’ from various overseas investors into some of our primary production points.

“Add to this a significant wave of liquidity driven by the global financial crisis from the US, Europe – and almost every other country and competition is inherently there for New Zealand prime assets.”

The changing property landscape will, according to the Real Estate 2020 report, have major implications for real estate investment and development. The size of the asset pool will increase, yet the nature of investment opportunities will change.

“There is a prediction that, as economies of scale become more important, already large global managers will become mega-managers with a foot across all geographies and channels,” Mr Church says.

Jody Robb writes for Bayleys Real Estate