It has been an interesting last quarter. Thankfully Covid has been less dominant in the headlines and the move to the orange traffic light system has meant that things are largely back to normal. The loosening of boarder restrictions is also finally resulting in an inflow of tourists. While really only a trickle now, the expectation is this will continue to increase over ensuing months.
Headlines have instead been dominated by rampant inflation, further rises in interest rates and even further tightening of the labour market. Inflation hit an annualised figure of just under 7% for the March quarter and is having a huge impact on the cost of living and on construction etc. Rising interest rates are also hitting people hard in the back pocket and although we had a 50-basis point rise in the OCR the banks have been far more aggressive with interest rate hikes. They have been slow however to increase deposit rates and now their margins look to be at record highs. The tightening labour market has a compounding effect of slowing productivity and driving up wages and salaries. While there is some light on the horizon with relaxing immigration restrictions, this will all happen far too slowly.
We touched on the impact of the new CCCFA regulations in February. This resulted in a significant slowdown in lending as the government enforced a lot of unnecessary red tape into the financial sector. Changes are coming which will dilute these hurdles for your everyday borrower and there is a hope that this will stimulate lending activity again.
The residential market has been impacted immediately. Listing volume is up and sales volume is down. While there is evidence that prices are easing a little, median house price is not necessarily a true indicator of real value. The main impact is the lack of buyer urgency with many now prepared to wait for an alternative property if they cannot secure their preferred property at their price level. All that said the replacement cost should ensure prices remain relatively strong.
The impact on the Commercial and Industrial sector conversely at this point has been minimal. The same characteristics remain true. There is still very limited stock of industrial property, be that for sale or even for lease. This has resulted in rents staying rock solid or in most cases growing. We still have plenty of capacity in B and C grade office stock with some real volume to come online as the likes of ACC and MSD developments come on stream. This will likely suppress rental rates and capital values in this sector. Retail trends are largely unchanged.
One other notable trend is the recent delay in some new developments. The rising cost of materials and labour, the supply chain delays, and the rising interest rates have meant that some developers have decided to park things until there is some respite in one or more of these factors. Bank funding remains difficult to secure, adding more complexity and uncertainty in this sector.
There is also evidence that our young adults are on the move. After more than two years of being couped up in New Zealand the “kiwi OE” is being reignited in earnest. Whether the driver is higher pay, better living conditions or simply life experiences, this will add fuel to the already tight labour market but may have the effect of relieving pressure in the residential rental/first home buyer market.
We would like to take this opportunity to thank all of those clients and customers that have supported us in the F22 year. It resulted in the Commercial branch taking out the Lodge Branch of Year award in a time when the residential market was certainly buoyant. Two of the team also managed to make it into the top 10 salespeople for all of Lodge. Once again, a good achievement given, they were they only individuals to achieve that feat without pa’s.
We desperately need industrial stock For Lease or Sale. If you are aware that your property is becoming vacant, or you are interested in freeing up capital for your business or retirement goals then please contact your preferred Lodge Commercial salesperson for assistance.