Page 1

Q U E E N STOW N & WA N A K A

MARKET REVIEW & OUTLOOK 2018 - 2019

Accelerating success


CONTENTS INTRODUCTION

3

QUEENSTOWN PROPERTY MARKET

4

OVERVIEW

4

RESIDENTIAL PROPERTY

8

COMMERCIAL PROPERTY

14

TOURISM PROPERTY

17

WA N A K A PROPE RT Y M A R K E T

20

ABOUT US

27

DUNEDIN PROPERTY MARKET

34

Whilst all care has been taken to provide reasonably accurate information within this report, Colliers International cannot guarantee the validity of all data and information utilised in preparing this research. Accordingly Otago Valuations Limited 2018, do not make any representation or warranty, expressed or implied, as to the accuracy or completeness of the content contained herein and no legal liability is to be assumed or implied with respect thereto. © All content is Copyright Otago Valuations Limited 2018 and may not be reproduced without express written permission.


Colliers International 3

INTRODUCTION Colliers International’s Market Review and Outlook 2018-2019 covers our key projections for the Queenstown and Wanaka property markets. The content is prepared by Colliers International's expert team of valuation and advisory professionals who have vast experience in the property market across the Otago region. We welcome your feedback on this report – please get in touch if you have any comments.

KEY TRENDS Unprecedented growth in tourism and related investment, infrastructure development, economic growth, low interest rates and increased construction activity are holding the Queenstown and Wanaka property markets at cyclical highs. Demand exceeds supply across the board and some sectors, including rental housing and visitor rooms, remain at crisis point.

OVERALL TRENDS:

Next 18 months

Continuing increase in tourism numbers

Shortage of visitor accommodation at peak periods

Construction boom continuing

Cost of construction squeezing commercial developers and residential section buyers

Nil vacancy in prime commercial property keeping rents high

Queenstown high value housing setting new records


4 Colliers International

QUEENSTOWN PROPERTY MARKET

PROPERTY Clock

OVERVIEW

U

nprecedented growth in the tourism sector, which currently shows no sign of abating, is sustaining the Queenstown property market. Coupled with strong domestic migration flows driven by the lure of a long term lifestyle change, these factors have combined to create a strong local economy, growth in new jobs and associated high demand for residential, commercial and industrial property as well as visitor accommodation. Based on historical metrics, the current property market peak could have been expected to falter, however this cycle appears to be different. We believe this can be attributed to the extremely strong tourism market providing a catalyst for ongoing high demand for property, as well as underpinning continued construction activity. The key factors driving property market growth are still strong and will continue to sustain property values at high levels in the short term. These factors, discussed in more detail, include:

• • • • • •

Tourism growth Economic growth Low interest rates Population growth Infrastructure development Commercial construction activity.

INVESTOR CONFIDENCE HIGH Investors remain highly confident in both the commercial and residential property sectors in Queenstown and we expect this trend to continue. Chronic supply constraints and extremely high demand in many areas of the market are encouraging investors to remain active. Commercial property investor confidence in Queenstown has led the country for the past three years, with confidence at consistently higher levels than all other property hotspots including Auckland and Tauranga/Mt Maunganui, according to Colliers International's quarterly Commercial Property Investor Confidence Survey. Commercial property investor confidence was at a net positive 62% in March 2018. Queenstown also continues to lead the country in Colliers’ Residential Property Market Outlook Survey, with confidence also at a net 62% positive for the March 2018 quarter – well ahead of Tauranga/Mt Maunganui at 43%.

Peak 12

Up Swing

Down Swing Trough


Colliers International 5

QUEENSTOWN PROPERTY MARKET

S

everal years of strong growth in the Queenstown property market have resulted in values reaching historic highs. The main drivers of this ongoing growth are expected to hold property values at high levels in most sectors of the market for the short to medium term. TOURISM GROWTH Queenstown’s tourism boom is continuing to strengthen. Hotel and motel occupancy rates and tariffs remain at historic highs and more visitor beds are needed, with accommodation regularly reaching full capacity in peak seasons. The advent of Airbnb in private homes has catered for overflow to date. However, more hotel supply is required to address the supply/ demand imbalance.

QUEENSTOWN TOURISM GROWTH Queenstown Regional Tourism Organisation (RTO) area

3.6

m

3.0

%

T O TA L G U E S T N I G H T S , YEAR TO MARCH 2018

2.2

bn

VISITOR SPENDING, YEAR TO MARCH 2018

14.0

%

GROWTH IN AIRPORT PA S S E N G E R M O V E M E N T S SINCE MARCH 2017

GROWTH IN GUEST NIGHTS, YEAR TO MARCH 2 0 1 8 C O M PA R E D W I T H PREVIOUS YEAR

2.1

m

QUEENSTOWN AIRPORT PA S S E N G E R M O V E M E N T S , YEAR TO MARCH 2018

3.2

m

FORECAST AIRPORT PA S S E N G E R M O V E M E N T S , 2025

Source: Stats NZ Commercial Accommodation Monitor March 2018, Queenstown Lakes District Council, Queenstown Airport, MBIE Regional Tourism Estimates


6 Colliers International

QUEENSTOWN PROPERTY MARKET

WA K AT I P U WA R D * P O P U L AT I O N G R O W T H Q U E E N S T O W N ' S R E S I D E N T P O P U L AT I O N I S E X P E C T E D T O A L M O S T D O U B L E I N T H E NEXT 40 YEARS

25,557

R E S I D E N T P O P U L AT I O N 2018

32,627

PROJECTED RESIDENT P O P U L AT I O N 2 0 2 8

49,374

PROJECTED RESIDENT P O P U L AT I O N 2 0 5 8

Source: 2018 QLDC Growth Projections, Infometrics. *Excludes Wanaka.

ECONOMIC GROWTH

L O W I N T E R E S T R AT E S

P O P U L AT I O N G R O W T H

Tourism’s contribution to the Queenstown Lakes District’s economy is immense, making up 33% of the district’s total GDP in 2017. With this extremely strong contributor, the Queenstown Lakes economy is booming. GDP growth in the district was 8.1% in 2017, compared with 3.6% for the whole of New Zealand.

The ongoing low cost of borrowing is a strong contributing factor to the very positive medium term outlook for the Queenstown property market (and many other centres in New Zealand), providing ongoing impetus for property investment. While the Reserve Bank of New Zealand has stated that monetary policy will remain accommodative for a considerable period, banks have indicated they may raise interest rates if the availability of funds becomes constrained again. In the meantime, the low interest rate environment is likely to remain as a major driver of the Queenstown property market.

The tourism boom, and associated growth in jobs in related industries, has resulted in high net migration into Queenstown Lakes District, which is the fastest-growing district in New Zealand. The usually-resident population in 2018 (Wakatipu Ward only, excludes Wanaka), was 25,557 and the population has grown by nearly 5% each year on average since 2013. This compares with national annual population growth of around 2%. The Wakatipu Ward’s resident population is expected to continue to grow faster than the national average, providing a very strong long-term demand driver for the property market.


QUEENSTOWN PROPERTY MARKET

Colliers International 7

INFRASTRUCTURE DEVELOPMENT Queenstown’s rapid pace of growth has left local and central government scrambling to address infrastructure issues accross the district. In its draft 10-year plan, Queenstown Lakes District Council (QLDC) proposes nearly a billion dollars worth of capital works over the next decade. Projects recently completed include the Hawthorne Drive (Eastern Access Road) extension, Wakatipu High School and the new Kawarau River bridge. Another point of contention is the lack of an adequate hospital, at a time when the government is investing well over $1bn into building a new hospital in Dunedin. While a $6.5m expansion project on Queenstown’s Lakes District Hospital is getting underway in 2018, the Council, Civil Defence personnel and many residents believe it will still fall short of requirements for a highgrowth district.

COMMERCIAL CONSTRUCTION ACTIVITY Commercial construction continues apace, with Frankton the scene of major activity. Notable commercial developments, either currently underway or proposed, include: • Queenstown Central: 10,000m² of retail and 4,500m² of office space in Frankton • Porter Group’s conference centre at Remarkables Park and gondola to The Remarkables ski area • Queenstown Airport considering options as part of its 30-year master plan, including a new partial heavy parallel taxiway, terminal extensions or a potential new terminal • Skyline’s $100 million investment into replacement 10-seater gondola cars, a new base terminal building and a major expansion of its upper restaurant complex to seat up to 650 people and cater for large functions and conferences • IFly indoor skydiving simulator currently under construction, expected to open June 2018 • Hotel developments (detailed later in this report).

Infrastructure development proposals include: • A new primary school (site being purchased by MOE) • Expansion of Wakatipu High School to increase capacity from 1,200 to 1,800 students • Pipeline extensions to connect Hanley’s Farm subdivision with the Shotover waste water treatment plant • A $385m upgrade of the town centre (see boxed text) • Possible land use changes for rural land on Ladies Mile, adjacent to Queenstown Country Club, to permit construction of over 1,000 homes and a retail hub if Special Housing Area (SHA) consent is obtained • A loan of $50m from the government’s Housing Infrastructure Fund to QLDC for the establishment of infrastructure to develop up to 3,000 new homes in Ladies Mile, Frankton and Kingston.

MAJOR UPGRADE FOR QUEENSTOWN TOWN CENTRE QLDC councillors and staff are busy planning $385m of upgrades aimed at revitalising the Queenstown town centre, to be rolled out over the next 35 years. The unanimouslyapproved plan includes a new $140m town centre bypass road from Melbourne St to the One Mile roundabout, parking buildings, a transport hub and a new $41.5m council building as part of a “civic heart” precinct in the town centre. The Man St bypass project will present significant challenges including sewerage and stormwater upgrades.

QUEENSTOWN COMMERCIAL AND INFRASTRUCTURE DEVELOPMENT: Projected approximate value of upcoming projects 2018

2019

2020

INFRASTRUCTURE

$36m

$77m

$81m

COMMERCIAL

$96m

$368m

$465m


8 Colliers International

RESIDENTIAL PROPERTY MARKET

Queenstown Lakes District

RESIDENTIAL PROPERTY MARKET

Section Prices

$500,000 MEDIAN PRICE YE APRIL 2018

$227,000

OVERVIEW

MEDIAN PRICE YE APRIL 2013

R

esidential property in Queenstown is still in extremely high demand, with limited supply keeping sale prices at elevated levels. New rating valuations announced in July 2017 show the total capital value of properties in the Queenstown Lakes District has almost doubled in three years. A lack of stock for first-home buyers in Queenstown is pushing buyers to outlying towns such as Cromwell and Kingston. However, market sentiment in Queenstown is moderating and sales volumes have levelled off from the highs of 2016. At the same time, long term rental rates have stabilised.

17.1% ANNUALISED GROWTH Source: Colliers International Queenstown

Housing is in very short supply in the Queenstown Lakes District. Under QLDC’s current growth projections there will need to be an additional 9,158 dwellings district-wide by 2028, rising to 17,462 by 2048.

QUEENSTOWN BUILDING PERMITS 900

SECTIONS

800 700

• • •

Subdivision development activity • • • • • • •

Millbrook: addition of nine golf holes and 42 home sites on neighbouring Dalgleish Farm Homestead Bay: up to 140 sections plus 12 larger lifestyle lots, a hotel, retail, café/restaurant and marina The Village at Jack’s Point: including homes, hotels, office space, restaurants, cafes and retail Hanley’s Farm: up to 2,200 sections planned Bridesdale Farm: 134 sections, construction of new homes progressing quickly Potential for over 3,000 new sections at Quail Rise, Ladies Mile and Kingston under the government and QLDC’s Housing Accord Major retirement village development: Arrowtown Lifestyle Retirement Village and Queenstown Country Club.

300 200 100

CASE STUDY: Sections 7 Hackett Rd, Jacks Point Size: 853m² Purchased: July 2015, $270,000 Sold: May 2018, $559,000 Annualised Growth: 29.3% 2 Headley Dr, Shotover Country Size: 659m² Purchased: March 2016, $320,000 Sold: March 2018, $435,000 Annualised Growth: 20.2%

2017

2015

2011

Year Ending

2013

2007

2009

2005

2001

2003

1997

1999

1995

1991

1993

1987

1989

0 1985

400

1981

500

1983

High price expectations among developers and vendors Section owners increasingly delaying development of their properties due to high construction costs High demand for sections priced at market level, with sales slowing for sections where pricing is perceived as too high Sections on-selling for inflated prices, resulting in subdivisions intended to be “affordable” such as Shotover Country and Bridesdale Farm being left overpriced and at higher risk of correction in the medium term as buyers look elsewhere High construction costs closing profit margins for buyers looking to build and sell Turnkey build solutions more attractive to buyers and lenders in the current high construction cost environment High demand for sections coming up against restricted supply, with developers holding significant parcels of residential-zoned land but delaying bringing projects to market Section values may stabilise and possibly fall if consents for high density subdivisions are obtained in Frankton and Ladies Mile SHA's.

1979

• •

No. of Permits Issued

600

Trends


RESIDENTIAL PROPERTY MARKET

Colliers International 9

OVERSEAS INVESTMENT AMENDMENT BILL The government’s proposed Overseas Investment Amendment Bill, restricting foreigners from buying residential property in New Zealand, has come under strong opposition from some Queenstown residents and property owners. Opponents believe that, rather than resulting in Queenstown housing becoming more affordable in general, the proposal will instead restrict the flow of capital into important developments such as new residential apartments, as well as negatively impacting the construction industry. The 1,000m² Twin Peak View house (pictured), at Wyuna Preserve near Glenorchy, on the market for $33 million, is believed to be the third most expensive private residence ever listed in New Zealand. The house was built by Triple Star Construction for an overseas client.

HOUSES

CASE STUDY: Dwellings

Trends

3 McAdam Dr, Jacks Point

• •

Land Size: 716m²

• • •

• • • •

New housing supply quickly absorbed Longer sales timeframes becoming more common for homes priced over $1m (sub-$1m property still selling fast) Affordability ceiling reached in secondary sales in the lower end of the market eg Shotover Country, with prices unlikely to go much higher Prices still high in central Queenstown, with precedent-setting sales still occuring High demand for properties with ‘home and income’ configuration, with the supplementary income giving buyers increased confidence to take on mortgages. However, buyers should be aware that rents have now levelled off in some subdivisions and pockets of rental oversupply may begin to emerge Sales methods such as price marketing and deadline sales becoming favoured over auctions, with clearance rates under the hammer having weakened Increase in the average number of days to sell Older homes more difficult to sell, with buyer preference for new stock Outlying towns benefiting from people becoming priced out of Queenstown.

A four bed three bath dwelling Purchased: August 2014, $818,000 Sold: January 2018, $1,240,000 Annualised Growth: 12.6% 1 6 Va n co u ve r D r , Q u e e n s t ow n A three bed three bath dwelling Land Size: 335m² Purchased: April 2016, $950,000 Sold: March 2018, $1,730,000 Annualised Growth: 36.8%

Queenstown Lakes District House Prices

WA K AT I P U R E S I D E N T I A L S A L E S V O L U M E

$1,152,500

1,200 1,100

MEDIAN PRICE YE APRIL 2018

1,000

Sale Price $ (millions)

900 800

$600,000

700 600

MEDIAN PRICE YE APRIL 2013

500 400 300

13.9%

200 100 0

1986 1988 1990 1992 1994 1996 1998

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Year (* - Current year data is projected based on YTD sales) Dwellings

Units

Managed Apartments

ANNUALISED GROWTH Source: Colliers International Queenstown

Sections

Total


10 Colliers International

RESIDENTIAL PROPERTY MARKET

A PA R T M E N T S & TOWNHOUSES Queenstown Lakes District

Trends • • • • •

Limited construction of new apartment/townhouse stock planned for central Queenstown, with most construction activity in Frankton Land and construction costs presenting significant challenges for developers High demand resulting in price rises for existing units Attractive returns on managed apartments due to good occupancy rates Limited transaction numbers in the apartment sector due to owners holding on to assets.

Upcoming and proposed apartment/townhouse developments include: • • • • • • • • •

The Freshwater: 16 luxury apartments under construction on Hallenstein St Queenstown Views: managed apartments on the corner of Man and Brecon Streets 21 Man Street; plan for 18 modern architecturally designed apartments constructed over 4 levels Wyndham Garden, Remarkables Park: 75 serviced apartments and 55 residential apartments Residence du Parc, Arthur’s Point: 48 apartments under construction Remarkables Residences: over 200 three to five bedroom townhouses at Frankton, stage one under construction Toru Apartments: around 200 studio, one bedroom and two bedroom units in three five-level buildings, under construction Bullendale, Arthur’s Point: 26 freehold townhouses and 34 strata titled terraced homes sold out, further stages selling Alexis: 32 dual-key apartments near corner of Hallenstein St and Gorge Rd.

CASE STUDY: Capital Growth Units in a block of three near the town centre: 8A Hallenstein St

8C Hallenstein St

3 bedroom townhouse

3 bedroom townhouse

Sold: Jan 2011, $608,000

Sold: Sep 2010, 600,000

Sold: Aug 2015, $776,000

Sold: Nov 2016, $1,120,000

Sold: April 2018, $1,280,000

Sold: April 2018, $1,320,000

Annualised Growth (2011-2018): 10.8%

Annualised Growth (2010-2018): 11.0%

Concept image of Toru Apartments

Apartment & Townhouse Prices

$753,000 MEDIAN PRICE YE APRIL 2018

$420,000 MEDIAN PRICE YE APRIL 2013

12.4% ANNUALISED GROWTH Source: Colliers International Queenstown


RESIDENTIAL PROPERTY MARKET

Colliers International 11

R E N TA L MARKET Trends • • • • •

Asking rents levelling off, although Queenstown remains one of the most expensive places in New Zealand to rent a house Demand for rental houses still high, while supply remains limited in peak seasons Unaffordability and scarcity of rental housing impacting local businesses, as workers and staff find it difficult to secure somewhere to live Clampdown on short-term letting via Airbnb and similar providers may increase the supply of homes available for longterm rentals in the medium to longer term Seasonal workers renting beds in shared rooms due to affordability issues in the town centre.

MEDIAN RENT PER WEEK, SIX MONTHS TO 30 APRIL 2018: Three bedroom house QUEENSTOWN CENTRAL

$690

AUCKL AND (CENTRAL EAST)

$420

CHRISTCHURCH (CENTRAL)

$472

Source: Tenancy.govt.nz

AIRBNB A N D T H E Q U E E N S T O W N R E N TA L H O U S I N G M A R K E T Airbnb has been singled out as a potential contributor to affordability issues in the Queenstown rental housing market, with proposed Council rules aimed at protecting the supply of long-term rental houses in Queenstown gaining national media coverage. Infometrics data shows that Airbnb listings (“whole house” only) make up a whopping 14% of the total housing stock in Queenstown Lakes District. Nationally, the ratio stands at 1.2%. Arguments in defence of Airbnb include the fact that many people rely on short-term letting to service their large mortgages, enabling people to live and work in Queenstown who may not otherwise be able to afford to. Reducing the availability of Airbnb listings may also exacerbate Queenstown’s visitor accommodation room shortage and cost local jobs (for example the cleaners and property managers who service Airbnb homes). Hotel development over the medium term will address the imbalance. However, tourism growth projections will likely mean Airbnb remains as a necessary alternative for Queenstown visitors into the future.


12 Colliers International

RESIDENTIAL PROPERTY MARKET

RURAL & LIFESTYLE Trends • • • • • • • • • • • •

Limited supply of sections and homes driving strong price growth and lower sales volumes Premium prices being paid for lifestyle land in desirable areas due to a shortage of available land for sale Increase in sales of high value homes in the $5m to $10m range Slowdown in purchases by foreigners until the likely effect of proposed overseas ownership regulations is known, as future liquidity could be uncertain Few speculative buyers for vacant sites, with most purchasers intending to build as opposed to hold Increased building costs causing increased preference for the ‘finished product’ among buyers Purchasing for renovating is also popular Further value growth and reduced sales volumes expected as currentlyavailable stock is sold down, exacerbating the supply shortage Continued value growth in secondary lifestyle areas such as Bob’s Cove and Gibbston Further applications to re-zone rural land under Housing Accord/Special Housing Area rules will further constrain potential supply Continued building activity, particularly of $2m-plus homes Continued popularity of lifestyle subdivisions such as Millbrook.

H I G H - VA L U E DWELLING SALES:

H I G H - VA L U E L A N D SALES:

52 Mount Alfred Rd, Wyuna Preserve, Glenorchy: a large four bedroom, four bathroom house designed by Mason and Wales, with panoramic lake and mountain views. Sold February 2017, $6.5m

Lot 10, Closeburn Station: a resortstyle 814m² residence spread over five separate buildings, purchased by a high net worth individual and representing the highest-ever residential property transaction value in Queenstown. Sold March 2017, $23.25m

Walter Peak: 40ha of land including a lodge plus eight vacant lifestyle sites, each with title and approved building platform, adjacent to Walter Peak Station. The proposed development, known as Walter Peak Estate, was subdivided in 2008 for an exclusive high-end lifestyle development including a luxury lodge and marina. Last year the entire property was sold to an Australian based high net worth individual who intends to build a substantial executive residence on the lodge site. Sold August 2017, price confidential but understood to be around $14.5m.

PROPOSED LIFESTYLE PRECINCT ZONE A new ‘Lifestyle Precinct’, part of QLDC’s Wakatipu Basin Rural Amenity Zone, has been earmarked in stage two of the council’s Proposed District Plan. The zone includes land identified as having capacity to absorb higher levels of development, with a density of one residential unit per 6,000m² and an average density of 10,000m² (one hectare) overall. The Lifestyle Precinct would replace the existing Rural Lifestyle and Rural Residential zones in the Wakatipu Basin. All buildings would require a Restricted Discretionary Activity resource consent to manage buildings’ visual effects and preserve landscape and rural amenity values.

Lot 2, Domain Rd: a 4.3ha site located on the western side of Domain Road, sloping down towards the Shotover River and reserve land. Good views of surrounding mountains. Sold February 2017, $2.1m

Lot 13, Closeburn Station: a 4,542m² site with attractive lake views. Sold April 2017, $3.1m


Colliers International 13

RESIDENTIAL PROPERTY MARKET

Walter Peak

RURAL & LIFESTYLE SECTIONS

RURAL & LIFESTYLE HOMES

2.575m

1.02m

$

$

MEDIAN PRICE IN 2017

MEDIAN PRICE IN 2017

29% increase (2016: $790,000)

34% increase (2016: $1.92m) Sales volumes down 38%

63

40

LIFESTYLE SECTIONS SOLD IN 2017

LIFESTYLE HOMES SOLD IN 2017

27% decrease (2016: 86)

(2016: 64)

WA K AT I P U M E D I A N L I F E S T Y L E SECTION SALE PRICES & VOLUME

WA K AT I P U M E D I A N L I F E S T Y L E DWELLING SALE PRICES & VOLUME

$1,200,000

120

$3,000,000

$1,000,000

100

$2,500,000

$800,000

80

$2,000,000

$600,000

60

$400,000

40

70

60

Sale Price ($)

40 Volume

Volume

$1,500,000

30 $1,000,000

20 20

$200,000

0

Median

17

16

15

20

20

14

20

13

20

12

11

20

20

10

Number of sales

20

09

20

08

20

07

06

20

20

05

20

04

20

03

20

02

01

20

20

00

20

99

20

98

97

19

19

96

19

19

95

$0 19

Sale Price ($)

50

$500,000

10

0

$0 2003

2004

2005

2006

2007

2008

2009

Median

2010

2011

2012

Number of sales

2013

2014

2015

2016

2017


14 Colliers International

COMMERCIAL PROPERTY MARKET

COMMERCIAL PROPERTY MARKET CBD COMMERCIAL MARKET: Key Indicators SECTOR

ANNUAL RENT

S U P P LY

DEMAND

P R I M E R E TA I L

$1,350-$2,000

Nil

High

4.0-4.5%

SECONDARY R E TA I L

$ 6 0 0 - $ 1,1 0 0

Nil

Increasing

4.5-5.5%

OFFICE

$270-$400

Low

Steady

(100m² – 120m²)

($/m²) plus GST & OPEX

$ FORECAST

YIELD

C B D R E TA I L & OFFICE PROPERTY Trends • • • • • • • • • •

CBD retail landscape changing as retailers pay premium rents to secure space in central Queenstown Rental growth continuing in both prime and secondary retail property in the CBD Prime Queenstown retail space still in very high demand and fully leased Very few commercial properties coming to the market for sale Planned redevelopment of O’Connells Mall will alter the CBD tenant mix (see boxed text) Local businesses selling leases for key money Lure of cheaper space in Frankton Flats retail developments may draw some tenants away from the CBD Lack of available space and increasing cost of car parking for customers and staff may prompt office occupiers to also move to Frankton Flats Older office space quality will need to improve in the CBD to be competitive with Frankton No significant contiguous office space currently available in the CBD, although Queenstown Lakes District Council’s proposed construction of new headquarters on Stanley St would free up space in their four existing offices Proposed extension of Town Centre zoning area under QLDC's Plan Change 50 may provide some supply, alleviating pressure on the fringe of the CBD.

T R A N S F O R M AT I O N PLANNED FOR O'CONNELLS Skyline’s planned multi-million dollar investment into redeveloping O’Connells Shopping Centre, Queenstown’s only indoor mall, will give the nearly 30-year-old centre a much-needed facelift – aligning it with international best practice in modern mall design. Current town centre rent levels may cause some of the mall’s current occupiers to look at relocating to Frankton Flats where there is vacant space available at lower rentals.

Concept image of the redevelopment planned for O’Connells Shopping Centre


Colliers International 15

COMMERCIAL PROPERTY MARKET

FRANKTON COMMERCIAL PROPERTY Trends • • • • •

New supply of retail and office space is being absorbed, but the opening of upcoming stages may result in increased vacancy (commercial space at Frankton has trebled over the past five years) Longer term, significant growth in the local population; along with two new hotel developments and Wakatipu High School’s relocation to Frankton is expected to result in vacant space being taken up and rents rising Viability of new developments being challenged by high construction costs In the medium to long term, Five Mile/Shotover Park/Queenstown Central will have the critical mass to be the leading business precinct in Franton. However, car parking could also become an issue in the area Proposed business mixed use zoning for the northern side of Frankton-Ladies Mile Highway opposite the Queenstown Events Centre/Five Mile/Queenstown Central.

FRANKTON COMMERCIAL MARKET: Key Indicators SECTOR (100m² – 120m²)

ANNUAL RENT ($/m²) plus GST & OPEX

S U P P LY

DEMAND

$ FORECAST

YIELD

R E TA I L

$300-$750

Moderate/high

Steady

5.0-6.0%

L A R G E F O R M AT R E TA I L A N D SHOWROOM

$200-$450

Steady

Increasing

5.0-6.0%

OFFICE

$270-$400

Low

Increasing

5.0-6.0%

Some of the commercial development activity (proposed or underway) at Frankton Flats includes: •

• • • •

A 46-hectare subdivision stretching from Hawthorne Dr to the Kawarau River which will feature hotels, tourist apartments, commercial units and residential apartments/ townhouses (resource consent application lodged early 2018) Queenstown Central: 10,000m² of retail anchored by Kmart and 4,500m² of office space in four buildings (first stage due late September 2018) Five Mile: construction of Buildings 7 and 8, including 4,050m² of office space, ground floor food & beverage/retail spaces and a 70-room hotel Wyndham Garden, Remarkables Park: 75 serviced apartments and 55 residential apartments M-space: 15 multi-use commercial and industrial units aimed at smaller businesses, next to Mitre 10 Mega at Shotover Park.

Concept image of Queenstown Central

Concept image of Building 8, Five Mile


16 Colliers International

COMMERCIAL PROPERTY MARKET

INDUSTRIAL PROPERTY Trends • • • • • • • • •

Construction and tourism boom continuing to underpin business growth and confidence for occupiers of industrial property Critical shortage of industrial land available for development (Glenda Drive in Frankton currently has the lowest vacancy rate on record) Shortage of yard-based industrial land in Frankton, with around 8,000 rental cars currently stored in the area (this number is likely to grow) Increases in land values expected to continue, currently in excess of $900/m², effectively no new supply in the Frankton Flats area Some development of smaller industrial units underway, aimed at meeting demand for entry-level/more affordable industrial space Shortage of industrial property for lease, and the high cost of construction of new buildings, resulting in rent increases. New builds have rental levels in excess of $180/m² Widening margin between rents on existing buildings vs new builds, with rents on new builds usually based on build costs rather than market levels. This trend is likely to have the effect of dragging up rentals across the industrial sector Lack of investment stock pushing yields lower Ongoing trend for businesses to relocate to Cromwell due to challenging industrial property market conditions in Queenstown (see boxed text).

B R O A D I N T E R P R E TAT I O N O F “ I N D U S T R I A L ” Z O N I N G R E S U LT I N G I N A LT E R N AT I V E U S E S OF LAND The trend for bulk retail and service-oriented businesses to take up industrial land is further exacerbating the squeeze on land availability and price for traditional industrial occupiers. In Frankton, rental car companies have taken large tracts of yard-based, industrial-zoned land for vehicle storage; while in the Gorge Rd area in central Queenstown, business mixed zoning has been approved – allowing retail and residential use in addition to traditional industrial.

TRANSACTION HIGHLIGHTS 31 McNulty Rd

8 -1 2 M c B r i d e S t

Sold: $1,945,000

Sold: $1,810,000

Date: July 2017

Date: April 2018

Yield: 6.43%

Yield: 3.32%

5,618m² freehold site leased to Expol Limited

759m² freehold corner site, yard based industrial with strong redevelopment potential

CROMWELL’S INDUSTRIAL SECTOR GROWTH As well as experiencing high population growth, Cromwell is quickly becoming a preferred location for industrial property users, due to the very low availability of land in Queenstown. With significantly lower land prices and a strategic location providing ready transport access to Queenstown and Wanaka, Cromwell’s industrial sector is growing fast under increasing demand from the logistics, horticulture and viticulture sectors. While land prices have doubled in recent years in Cromwell, sites are still available at $260-$350/m², compared with Frankton where land is now $900-$1,200/m².

CROMWELL

Average Industrial Land Sales

$173/m²

2015

$191/m²

2016

$269/m²

2017

CLOSEBURN INDUSTRIAL ZONE Around 80 hectares of land at the base of The Remarkables mountain range is earmarked for rezoning as industrial land. The proposed zone would enable industrial, service retail and yard-based use, as well including as large areas of open space. If approved under the district plan process, it would help alleviate the severe shortage of industrial land in Frankton.


Colliers International 17

TOURISM PROPERTY MARKET

TOURISM PROPERTY MARKET Projections • • • • • •

Visitor accommodation remaining in extremely short supply for the medium term Ongoing growth in visitor numbers and spending will continue to underpin tourism-related property Room tariffs and occupancy rising with availability decreasing under the pressure of high demand Construction booming, with significant tourism-related developments underway and planned (see boxed text) Increasing cost of accommodation resulting in shorter average stay lengths and some tour groups using out-of-town accommodation Airbnb providing more options for visitors, at the expense of the residential rental pool.

UPCOMING ROOM S U P P LY S N A P S H O T (as at May 2018)

330 rooms UNDER CONSTRUCTION

686 rooms CONSENTED

1,389 rooms AT C O N S E N T S TA G E

QUEENSTOWN R T O * A R E A AV E R A G E D A I LY R O O M R AT E YEAR TO MARCH 2018 GROWTH SINCE PREVIOUS YEAR Source: Colliers International Hotels

$239 17.6%

*Regional Tourism Organisation

QUEENSTOWN RTO AREA ANNUAL GUEST NIGHTS YEAR TO MARCH 2018 GROWTH SINCE PREVIOUS YEAR Source: Stats NZ Commercial Accomodation Monitor

3,618,459 3.0%

T O TA L P O T E N T I A L U P C O M I N G S U P P LY :

2,405 rooms

(based on tourism projections - 10 year supply)

While the number of potential new rooms may appear to signal pressure easing on Queenstown’s hotel room supply, it is important to note that it can take around four years to bring a new hotel to market, from concept stage to construction completion (sometimes longer, depending on the consent process). This means the extra rooms are more likely to come on stream in stages, rather than flooding the market. Source: Colliers International Otago


18 Colliers International

TOURISM PROPERTY MARKET

N E W R O O M S U P P LY Four new hotels opened in Queenstown during the last 12 months, adding over 250 rooms to the town’s inventory: • Jucy Snooze: recently opened on corner of Camp and Memorial Streets (60 rooms) • Mi-pad: expected to open end of June 2018 on Henry St (54 rooms) • Wyndham Garden: recently opened at Remarkables Park (75 rooms) • QT Hotel: developed above the Rydges Hotel (69 rooms). The most notable visitor accommodation development currently under construction (at time of report production) is the Holiday Inn Express on the corner of Stanley, Sydney and Melbourne Streets, expected to open late 2019 (227 rooms).

QUEENSTOWN RTO AREA O C C U PA N C Y R AT E (excl holiday parks)

71.2% YEAR TO MARCH 2018 Source: Stats NZ Commercial Accomodation Monitor 2018

PROPOSED HOTEL DEVELOPMENTS INCLUDE: • • •

Ramada Queenstown: Frankton Rd, estimated opening late 2019 (131 rooms) Ramada Kawarau River: Remarkables Park, estimated opening early 2020 (87 rooms under construction) Remarkables Park: boutique hotel opening in 2020 (40 rooms).

Concept image of Holiday Inn Express

VISITOR SPENDING (Queenstown RTO area)

$2.231bn

12.0%

YEAR TO MARCH 2018

GROWTH SINCE PREVIOUS YEAR

Source: MBIE Regional Tourism Estimates

Concept image of Wyndham Garden


Colliers International 19

TOURISM PROPERTY MARKET

VISITOR NUMBERS WA K AT I P U WA R D 2 0 1 8

TRANSACTION HIGHLIGHT Arrowtown Motel Apartments A 12 unit motel complex located on a 1,741m² site in close proximity to the Arrowtown Town Centre

On peak days in Queenstown, visitors significantly outnumber residents:

25,557

44,854

R E S I D E N T P O P U L AT I O N

T O TA L V I S I T O R S , P E A K D AY

Sold: $3,500,000 Date: May 2018 Y i e l d : 7.4 %

T O TA L P E A K D AY P O P U L AT I O N :

70,411

Source: QLDC Growth Projections 2018 *For the whole district including Wanaka, peak day population is 117,349, close to the population of Dunedin.

COLLIERS INTERNATIONAL QUEENSTOWN

2018 PEDESTRIAN COUNT TOP SPOTS Count locations

Br ec on St

1

6

8

t

Th Re

es

e

2

9

M

St

all

Se

a

rle

Ch

u

Ca

m

Ln

h rc

p

St

St

6A

Ea

rl

a

C

Ln

ST

Be

5S ch

t

3

ow

Colliers International

Y

6A

TO

ST

C

LE

O SH

R7 VE

10

lS

Pedestrian density

St

t

ho

B

ra

AN ST

M

S an

CA t

4

la al

(approximate)

t tS

1 Camp Street

To p S p o t 4

Foot traffic

18% on 2017

Highest pedestrian count RECORD BREAKING


20 Colliers International

WA N A K A PROPE RT Y M A R K E T

P O P U L AT I O N G R O W T H : WA N A K A WA R D (includes Hawea)

WA N A K A PROPERTY MARKET OVERVIEW

T

he Wanaka property market remains strong, with demand still exceeding supply in most sectors. However, the fast pace of growth which characterised the market over the past two years has begun to taper off.

The market continues to benefit from strong population and tourism growth. As a result, residential construction is booming, although building costs are also steadily increasing and appear high in comparison to other locations in New Zealand. There is likely to be room for further expansion of the property market before demand and supply begin to equalise and we see the end of the current growth cycle.

Many homes in Wanaka serve as holiday homes for owners based throughout New Zealand, so it is difficult to accurately measure the town’s usually-resident population. Although a large number of homes are in use for a good proportion of the year, the below population figures may not accurately reflect Wanaka’s actual population.

12,491

U S U A L LY - R E S I D E N T P O P U L AT I O N 2 0 1 8 (2013: 9,500)

34,448

T O TA L V I S I T O R S , P E A K D AY 2 0 1 8

7,945 46,939

T O TA L V I S I T O R S , AV E R A G E D AY 2 0 1 8 T O TA L P E A K D AY P O P U L AT I O N 2 0 1 8

Source: Queenstown Lakes District Council Growth Projections 2018


RESIDENTIAL PROPERTY MARKET

RESIDENTIAL PROPERTY MARKET

S E C T I O N S U P P LY as at May 2018

2,540

Trends • • • • • • •

Colliers International 21

Good demand in all value brackets, with limited housing stock currently available Shortage of listings across all value brackets Significant increase in residential construction activity, with increases in both building consent volumes and total value Long term rental property shortage continuing, particularly good quality family accommodation Entry level homebuyers largely priced out of Wanaka and Albert Town and looking to Lake Hawea and Luggate as more affordable options House and land packages set to continue to sell off plans or while under construction Residential construction will remain strong for the foreseeable future due to number of pre-sold sections due to have titles issued.

SECTIONS RELEASED

622 PRESOLD SUBJECT TO TITLE

1,918 SECTIONS REMAINING Source: Colliers International

SECTIONS

WA N A K A M E D I A N S EC T I O N & DWELLING SALES PRICES & VOLUME 1,000

900

900

800

800

700

700

600

600

500

500

400

400

300

300

200

200

100

100

Prime residential and lifestyle properties remain highly sought after, with many buyers lured by Wanaka’s popularity as a lifestyle destination. Buyers of lifestyle property have been particularly active recently in the $3m to $5m price bracket.

Total section & dwelling sales

Number of dwelling sales Section median

2017

2015

2016

2013

2014

2011

2012

2010

2009

2007

2008

2005

2006

2003

2004

2001

2002

1999

2000

1997

1998

1995

1996

1993

1994

0 1992

0

LIFESTYLE PROPERTY Volume

Sale Price $ (thousands)

1,000

Section sales volumes are moderating from the highs of the past two to three years. Sales volumes have slowed to a steady pace with supply currently meeting demand. More supply will likely become available once titles are issued for pre-sold sections over the coming year.

Number of section sales

Dwelling median

Information used in this graph does not include section sales in developments where Computer Freehold Register Identifiers (titles) have yet to be issued or section sales where lots have been sold directly from the developer. It is noted that the median section price is skewed due to the number of titles issued during 2017 that sold off plans in late 2015 and 2016. Re-sales in these developments have shown they are selling over and above the original sale price.

MEDIAN RENT PER WEEK, SIX MONTHS TO 30 APRIL 2017: Three bedroom house WA N A K A

$535

AUCKL AND (CENTRAL EAST)

$420

CHRISTCHURCH (CENTRAL)

$472 Source: Tenancy.govt.nz


22 Colliers International

COMMERCIAL/ INDUSTRIAL PROPERTY MARKET

COMMERCIAL/ INDUSTRIAL PROPERTY MARKET Trends • • • • • • • •

Commercial property continuing to be tightly held, with high demand and restricted supply resulting in low investment yields Few sales of commercial property in the CBD No vacancy in prime retail space in the CBD, with high tenant demand and rents increasing Increasing demand, and rents, for retail tenancies in secondary locations due to lack of availability in the CBD Key money being paid by tenants in a few cases to secure well-located CBD retail space Office rents showing increases, no availability of premium office space in the CBD Industrial property in high demand with little vacancy Industrial rents increasing, particularly for new leases in newly-built premises in order for the developments to be viable.

S H O R TA G E O F C O M M E R C I A L S PA C E Businesses wishing to enter the Wanaka market will find a lack of larger floor plates available, especially in the retail sector. Construction is due to commence on two properties in the CBD and further construction is imminent in the Three Parks development, which will provide some options for businesses struggling to find space in the Anderson Heights and Ballantyne Road areas – both of which have very low vacancy.

Some new commercial/industrial buildings are also under construction in the Anderson Heights and Ballantyne Road areas. In addition to the land available in the Three Parks mixed use development, an industrial subdivision known as Ballantyne Ridge is also being marketed for sale off plans offering further options for industrial owner occupiers and investors.

WA N A K A CO M M E RC I A L M A R K E T : K e y I n d i c a t o r s R E TA I L S E C T O R (100m² – 120m²)

ANNUAL RENT ($/m²) plus GST & OPEX

S U P P LY

DEMAND

R E TA I L

$565-$750

Low

High

4.5-5.5%

OFFICES (FIRST FLOOR)

$225-$315

Low

Increasing

5.0-5.5%

INDUSTRIAL (SHOWROOM)

$150-$250

Low

Increasing

5.0-6.75%

INDUSTRIAL (WORKSHOP)

$100-$130

Low

Increasing

5.0-6.75%

Source: Colliers International

$ FORECAST

YIELD


TOURISM MARKET

TOURISM MARKET Trends • • • • •

Significant annual growth in visitor numbers expected to continue Limited new supply of visitor accommodation planned and due to be completed in the next one to two years Airbnb offering visitors more options, at the expense of long term rental housing availability High demand and low supply of visitor beds making new apartment and hotel developments increasingly viable High cost of construction a major deterrent to hotel/ motel developers.

Colliers International 23

WA N A K A TO U R I S M S TAT I S T I C S

(year ended March 2018) T O TA L G U E S T N I G H T S 929,707 13.3% increase on previous year I N T E R N AT I O N A L G U E S T N I G H T S 573,955 12.9% increase on previous year O C C U PA N C Y R AT E (excl holiday parks) 69% AV E R A G E L E N G T H O F S TAY 2.2 nights VISITOR SPENDING $544M 22% increase on previous year Source: Stats NZ Commercial Accommodation Monitor, MBIE Regional Tourism Estimates


24 Colliers International

OUR TEAM

VA L U AT I O N & C O N S U LTA N C Y

QUEENSTOWN TEAM JOHN SCOBIE 027 564 8843 john.scobie@colliers.com

ANDREW HYNDMAN 021 856 469 andrew.hyndman@colliers.com

DOUG REID 027 431 3278 doug.reid@colliers.com

HEATHER BEARD 021 109 5502 heather.beard@colliers.com

CRAIG SINKINSON 021 254 2828 craig.sinkinson@colliers.com

BARRY MURPHY 021 822 612 barry.murphy@colliers.com

KATE FLUKER 021 0276 0261 kate.fluker@colliers.com

WA N A K A T E A M JODI TODD 027 229 8415 jodi.todd@colliers.com

GEOFF MCELREA 027 577 9607 geoff.mcelrea@colliers.com

TOM JARROLD 027 316 3430 tom.jarrold@colliers.com

LYNETTE BAILEY 021 243 2560 lynette.bailey@colliers.com

DUNEDIN TEAM TONY CHAPMAN 027 487 7351 tony.chapman@colliers.com

DUNCAN JACK 027 564 7424 duncan.jack@colliers.com

JOE CHAPMAN 027 361 8960 joe.chapman@colliers.com


OUR TEAM

Colliers International 25

COMMERCIAL SALES & LEASING

QUEENSTOWN TEAM ALASTAIR WOOD 027 436 2422 alastair.wood@colliers.com

MARK SIMPSON 027 490 6394 mark.simpson@colliers.com

RORY O’DONNELL 027 445 3982 rory.odonnell@colliers.com

GARRY PANKHURST 027 433 6304 garry.pankhurst@colliers.com

MARY-JO HUDSON 021 667 880 maryjo.hudson@colliers.com

TIM THOMAS 022 543 3210 tim.thomas@colliers.com

DUNEDIN TEAM DEAN COLLINS 027 499 0974 dean.collins@colliers.com

TOURISM SALES QUEENSTOWN TEAM BARRY ROBERTSON 027 433 5941 barry.robertson@colliers.com

STEVE MCISAAC 021 680 304 steve.mcisaac@colliers.com


26 Colliers International

OUR TEAM

RESIDENTIAL SALES QUEENSTOWN TEAM FRED BRAMWELL 021 435 694 fred.bramwell@colliers.com

STEPHEN HEBBEND 021 453 881 stephen.hebbend@colliers.com

BRENDAN QUILL 021 416 785 brendan.quill@colliers.com

JAMES O’HAGAN 021 909 323 james.ohagan@colliers.com

RICHIE HEAP 021 500 815 richie.heap@colliers.com

GRAEME JACKSON 021 667 067 graeme.jackson@colliers.com

SOPHIE JAMES 027 463 5361 sophie.james@colliers.com

MARIA WYNDHAM 021 997 522 maria.wyndham@colliers.com

EMMA LUPS 027 428 5100 emma.lups@colliers.com

NICOLE BELL 021 898 326 nicole.bell@colliers.com

JANNETTE HIGHSTED 021 608 613 jannette.highsted@colliers.com

ROWAN MCDONALD 021 222 6314 rowan.mcdonald@colliers.com

JESSE JOHNSTON 027 733 7755 jesse.johnston@colliers.com

SCOTT COLLINS 027 478 4661 scott.collins@colliers.com

HUGH CLARK 027 223 2997 hugh.clark@colliers.com

STEVE LINDSAY 021 454 417 steve.lindsay@colliers.com

KATH CRUICKSHANK 027 436 8531 kath.cruickshank@colliers.com

STUDENT & RESIDENTIAL INVESTMENT DUNEDIN TEAM MATT MORTON 021 577 800 matt.morton@colliers.com


Colliers International 27

ABOUT US C O L L I E R S I N T E R N AT I O N A L

OUR FULL SERVICE OFFERING

Colliers International’s Otago business offers a broad range of specialist property market services.

ƒƒ Property valuations - commercial, industrial, lifestyle, tourism-related and residential

Our combined knowledge provides clients with arguably the largest and most experienced team of property professionals in the region, based in offices in Queenstown, Dunedin and Wanaka.

ƒƒ Project developments - feasibility, advisory and management of the property development ƒƒ General consultancy - property acquisitions and sales, developments, subdivisions and syndications ƒƒ Research - retail pedestrian traffic counts, sales research and analysis, subdivision supply and demand, commercial vacancy and leasing supply and demand ƒƒ Commercial real estate sales and leasing ƒƒ Residential investment sales ƒƒ University investment sales.

QUEENSTOWN OFFICE

DUNEDIN OFFICE

WANAKA OFFICE

Top Floor 10 Athol St, Queenstown 03 441 0790

Level 4, ASB House 248 Cumberland St, Dunedin 03 474 0571

Level 1 93 Ardmore Street, Wanaka 03 443 1433


DUNEDIN

MARKET REVIEW & OUTLOOK 2018 -2019

Accelerating success


CONTENTS INTRODUCTION

33

DUNEDIN PROPERTY MARKET

34

OVERVIEW

34

RESIDENTIAL PROPERTY

36

COMMERCIAL PROPERTY

42

ABOUT US

27

WA N A K A PROPE RT Y M A R K E T

20

QUEENSTOWN PROPERTY MARKET

4

Whilst all care has been taken to provide reasonably accurate information within this report, Colliers International cannot guarantee the validity of all data and information utilised in preparing this research. Accordingly Otago Valuations Limited 2018, do not make any representation or warranty, expressed or implied, as to the accuracy or completeness of the content contained herein and no legal liability is to be assumed or implied with respect thereto. © All content is Copyright Otago Valuations Limited 2018 and may not be reproduced without express written permission.


Colliers International 33

INTRODUCTION Colliers International’s Market Review and Outlook 2018-2019 covers our key projections for the Dunedin property market. The content is prepared by Colliers International's expert team of valuation and advisory professionals who have vast experience in the property market across the Otago region. We welcome your feedback on this report – please get in touch if you have any comments.

OVERALL PROJECTIONS: Next 12 months

Property market growth and expansion continuing

Higher-yielding environment for investors vs other main centres

KEY TRENDS High levels of demand are characterising most sectors of the property market in Dunedin. Demand is strong in all value brackets in residential property, while on the commercial side, buyers are competing for prime assets. Stock availability is scarce across the board in the residential market and in most areas of the commercial market, with both occupiers and investors facing a shortage of options. Some areas of the market, such as rental housing, are at crisis point.

A shortage of rental housing making rents unaffordable to many

Out-of-town investors continuing to view Dunedin property as attractive

Business and economic confidence continuing to underpin property development activity


34 Colliers International

DUNEDIN PROPERTY MARKET

PROPERTY Clock Peak

OVERVIEW

T

he Dunedin property market remains in a growth and expansion phase. Growth in GDP, increasing population growth and major investment into property development by two of the city’s biggest employers – Dunedin Hospital and University of Otago – are some of the biggest contributors to the positive sentiment and high levels of investor confidence which are characterising the property market. The strongest drivers of the property market, discussed in more detail below, are: • • • •

Attractive investment yields Low interest rates Perception of Dunedin as a steady/conservative market Population growth.

AT T R A C T I V E I N V E S T M E N T Y I E L D S The relatively low cost of entry to the Dunedin property market compared with the main centres and property hot spots such as Queenstown and Tauranga is attracting investors from around New Zealand. While increased competition for assets, based on investors’ expectations of future value growth, is driving yields down; these remain at attractive levels when compared with many other cities, and certainly relative to bank deposit rates. Property in Dunedin is therefore being tightly held as landlords enjoy good returns in the low interest rate environment.

11 Up Swing

Down Swing Trough


DUNEDIN PROPERTY MARKET

Colliers International 35

L O W I N T E R E S T R AT E S The ongoing low cost of borrowing is a strong contributing factor to the positive medium term outlook for the Dunedin property market (and many other centres in New Zealand), providing ongoing impetus for property investment. While the Reserve Bank of New Zealand has stated that monetary policy will remain accommodative for a considerable period, banks have indicated they may raise interest rates if the availability of funds becomes constrained again. In the meantime, the low interest rate environment is likely to remain as a major driver of the Dunedin property market.

P E R C E P T I O N O F D U N E D I N A S A S T E A D Y/ C O N S E R VAT I V E M A R K E T The local property market’s “steady as she goes” reputation continues to attract property investors to Dunedin. Keen to avoid the hype of Auckland and Queenstown, many investors are opting for the perceived steadier and more sustainable growth on offer in Dunedin, while taking confidence from factors such as the major investment into infrastructure being made by the hospital and university, which is in turn spurring on growth in other areas such as increased residential construction activity. This positive sentiment is expected to help underpin the property market in the medium term.

P O P U L AT I O N G R O W T H The gradual return of population growth to Dunedin is one of the factors contributing to increased residential sales and construction activity, especially on greenfield land in the Mosgiel/Taieri area. Dunedin’s population increased by 1.4% in the year to June 2017 according to Statistics NZ, compared with average growth of just 0.6% over the past 10 years.


36 Colliers International

RESIDENTIAL PROPERTY MARKET

RESIDENTIAL PROPERTY MARKET RESIDENTIAL SALES YE MAR 2018

YE MAR 2017

YE MAR 2016

$365,000

$325,000

$292,000

M E D I A N D AY S T O S E L L ( A L L D W E L L I N G S )

24

22

27

SALES OVER $1M

39

29

28

MEDIAN PRICE (ALL DWELLINGS)

Source: REINZ. Excludes sections and lifestyle blocks.

2017 was a year of strong growth for the Dunedin property market and the outlook remains reasonably positive. Demand levels remain strong throughout the value ranges, with sales activity particularly high in the mid-value range (around $300,000 to $450,000). Demand is also strong at the over $450,000 level. At the same time, the volume of listings remains constrained, driving increased competition and high turnover of sales. New home construction activity is concentrated in Mosgiel/ Taieri, due to the limited supply of residential sections available in Dunedin City.

Trends • Business confidence, economic and population growth, low interest rates, relative affordability and levels of supply continuing to drive residential property market growth • Demand continuing at all value levels • Scope for some value growth, provided the major drivers of the market remain in place • Reduced levels of stock for sale in some sectors of the market compared with 2017 • Rental market reaching crisis point, with significant reductions in rental housing stock being reported • Construction costs increasing • More conversions of older commercial buildings into apartments, with anecdotal evidence pointing to growing demand for inner-city living options.


RESIDENTIAL PROPERTY MARKET

Colliers International 37

R E N TA L HOUSING High demand for properties for sale, along with legislative changes such as the Healthy Homes Bill (requiring landlords to either insulate their properties or contain heating able to make the home warm and dry), have resulted in many previously-rented homes being sold into the home ownership market. Anecdotal evidence suggests well over half of Dunedin rental houses sold are now owner-occupied rather than rented. As a consequence, rental housing stock has been drastically reduced, which is placing high pressure on rents and the availability of homes for rent.

MEDIAN RENT PER WEEK, SIX MONTHS TO 30 APRIL 2018: Three bedroom house DUNEDIN CENTRAL

$385

AUCKL AND (CENTRAL EAST)

$420

CHRISTCHURCH (CENTRAL)

$472

Source: Tenancy.govt.nz

A PA R T M E N T S CASE STUDY: Apartment Sales The concept of apartment living seems to be gaining traction in Dunedin, with the sector buoyed by the broader positive sentiment in the residential market. Anecdotal evidence shows apartment sales volumes picking up, with some new developments selling down quickly. This is in contrast to the prevailing conditions of recent years, where stock tended to sit on the market for longer. The outlook for value growth is positive, especially for new, high-quality units.

Units 1-6, 39 View St, Dunedin Central: six twobedroom apartments generating $430-$450 in weekly rent, sold individually to local and South Island-based buyers. The campaign generated 64 enquiries and 15 offers, with all units sold within 15 days. Sold March 2018, sale prices from $369,000$421,000, yield range 5.85%-6.34%.

39 View Street, Dunedin


38 Colliers International


Colliers International 39

RESIDENTIAL PROPERTY MARKET

STUDENT A C C O M M O D AT I O N P R O P E R T Y Trends

KEY

lw Se

St d lan nt St Pe

DUNEDIN - NORTHERN SUBURBS

North Campus City Warehouse Suburbs

yn

e

St

on

st

ad

n ow Cr

Gl Rd

NORTH EAST VALLEY

D

Rd il l al H

OR

KE

Si gn

RD

RT H NO OPO H

DU

Rd ks ac t Bl S c ni ha

ec M

gh

St e St am Fr rs e be Av am ng Ch ni di en Gl

leu

cc

m Ra

RD

Bu

ILL

St

y sa

d eR

BALMACEWEN R OAD

EH

Gladst on

Malvern St

PIN

St

WOODHAUGH

ST

CAMPUS FRINGE

NS

ST

Nth

CAS TLE

h St

Leit

en S t

E

DAS

ST

e St

E RE

T

RN

S

ST

H HIG

E RE ST

T EE ST R

T

FR YA T

T

HAWTHORNE AVENUE

rrac e bou

r Te

ST

CAMPUS SOUTH

O

WAREHOUSE PRECINCT

Har

DE CLY

AN

ST

TH

CITY 2

FOR TH

VE CA ZA

Hyd

ICK

BU

ST

Gra nge St Leit h St

ST

OCT AGO N

H

IT

SM

EW

ST

S

NDR

DER

A

ST A

FRE

M

L

KP

YOR

CUM

St

ST RA T TR AY ST

BER LAN

RGE

ST

DS T

ST

Her iot R ow

ART STU

gill Car

ALB ANY

GEO

LON

CITY 1

T TS

N DO

UNIV OF O ERSIT TAG Y O

PIT

D OA YR LLE I VA A R O KAIK

ST

GRE

AD RO

DR IV

CAMPUS NORTH

DUN

AT KIN GS CUM T BER L AN DS T

EE

ST

QU

RGE

DUNEDIN - HILL SUBURBS

RO AD

GEO

TA IE RI

How e St

VE RS

Que

DR I

THE

DS T

BER LAN

CUM

REE T

Big increase in sales of properties containing self-contained studios (17 sales in 2017 compared with 8 in 2016), suggesting a shift in buyer preference towards higher-returning studio properties Widening rental spread between high and low quality flats, driven by tenant expectations Tenants placing greater emphasis on quality of accommodation (in contrast with previous years where location has tended to be one of the more important concerns) Some vacancies arising in the prime campus area as students opt for higher-quality options in other locations Increases to student allowances expected to flow through to the student property market from 2019 onwards, with many students expected to use their extra allowance to fund a better-quality flat.

HG AT E

Increasing University of Otago student numbers expected to reduce vacancy in the property market, causing demand and rental levels to increase from 2019-2020 after a few years of negligible change Owners holding on to stock because of a lack of other options with acceptable yield Reduced volumes of stock for sale, although regulatory changes are expected to result in this trend reversing (detailed below) LVR restrictions closing out many local buyers from the market Out of town and overseas buyers becoming more active due to the low cost of entry to the market relative to other cities Buyers and tenants favouring higher-quality, refurbished or new properties Very few sales of large shared flats of more than seven bedrooms (just three in 2017, compared with nine in 2016)

HI G

Stadium

NSBOURN E RO RAVE AD


40 Colliers International

RESIDENTIAL PROPERTY MARKET

L O C AT I O N O F CAMPUS BUYERS 2017

L O C AT I O N O F CAMPUS BUYERS 2016 4%

18%

1%

48%

42% 32%

23%

21%

7%  Dunedin

 Overseas

4%

  North Island   South Island  Undisclosed

Source: Colliers International Dunedin

HOME AREA OF STUDENTS 10,000 9,000

No. of Students Enrolled

8,000 7,000

North Island Dunedin Otago/Southland

6,000 5,000 4,000

Rest of South Island Overseas

3,000

Unknown

2,000 1,000

19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17

97

98

19

19

19

96

0

Year

Source: University of Otago Annual Reports


Colliers International 41

RESIDENTIAL PROPERTY MARKET

TRANSACTION HIGHLIGHTS 35 Heriot Row, Dunedin Central

61 Lees Street, Dunedin Central

640 Castle Street, North Dunedin

SOLD: $818,000

SOLD: $1,050,000

SOLD: $485,000

DATE:

March 2018

DATE:

February 2018

DATE:

December 2017

RENT:

$1,015 per week

RENT:

$1,720 per week

RENT:

$620 per week

YIELD: 6.4% BEDS/BATHS:

YIELD: 8.5% 1/1 + 2/1 + 4/1

BEDS/BATHS:

YIELD: 6.6% 6x 1/1 + 3x 2/1

R E G U L AT O R Y C H A N G E S AFFECTING PROPERTY The government’s Healthy Homes Bill, passed in December 2017, will introduce extra compliance costs for owners of older properties. The threat of legal action from tenants over unlawful tenancies is also becoming a greater issue. These factors are expected to result in increased numbers of older properties being placed on the market in 2018 and 2019. On the buyer side, many potential investors will act cautiously given the prospect of the government introducing proposals to ring-fence rentals to stop investors offsetting losses. The extension of the bright-line test from two to five years (meaning paying tax on a profitable sale within that time) will also have an impact. In addition, insurers are increasingly excluding certain parts of older buildings from cover, resulting in banks refusing to lend. This will have an ongoing effect as problem properties struggle in the new compliant market. On the positive side, Government initiatives to curb declining tertiary rolls, including free first-year tertiary education and increased student allowances, will increase tenant demand for student flats and help reduce the vacancy rate.

ROLL INCREASES TO BENEFIT MARKET University of Otago figures show student numbers have generally been tracking down since 2010. However, March 2018’s figures showed an increase in equivalent full-time students (EFTS) of 322 compared with 2017, and numbers are expected to increase by a further 1100 EFTS by the end of the 2018. This is a positive indicator for student flat vacancy levels reducing over the course of 2019 and 2020.

BEDS/BATHS: 4/1

PRIME CENTRAL C A M P U S A R E A FA C T S

$210 W E E K LY R E N T P E R BEDROOM, NEW BUILD, FURNISHED (2017: $190)

$290 W E E K LY R E N T , P U R P O S E B U I LT S T U D I O U N I T S (2017: $260)

$140 - $150 AV E R A G E W E E K LY R E N T P E R BEDROOM (2017: $130 - $140)

6.6% MEDIAN YIELD Q1 2018 (2017: 6.8%)


42 Colliers International

COMMERCIAL PROPERTY MARKET

COMMERCIAL PROPERTY MARKET R E TA I L PROPERTY

R E TA I L M A R K E T SUMMARY 2017

7.6% VA C A N C Y

Trends • • • • • •

Retail vacancy rates in prime areas remaining very low due to high tenant demand (vacancy increasing for secondary space) Tenant demand very high for bulk retail space, with a lack of vacant space and available development land preventing several bulk retail tenants from entering the market Larger retail spaces becoming more difficult to lease as competition from online retailing results in tenants downsizing Local businesses becoming squeezed out of the prime George St market by national and international chains Food and beverage sector on the rise, especially in northern George St, the Octagon and the Warehouse Precinct Strong buyer demand for prime retail investments continuing, while landlords hold on to strong-performing assets.

GRADE

N E T FA C E R E N TS ( $ /m ² )

C A P I TA L VA L U E ( $ /m ² ) *

MARKET YIELDS (%)**

Prime

$500-$1,200

$6,250$21,820

5.5%-8.0%

Secondary

$150-$450

$1,365-$5,625

8 . 0 % -1 1. 0 %

Source: Colliers International Research *Assuming fully leased at market rates

AV E R A G E P R I M E N E T RENT

$300/m² AV E R A G E S E C O N D A R Y NET RENT

7.13% AV E R A G E P R I M E MARKET YIELD

RECORD CRUISE SHIP PA S S E N G E R S

R E TA I L M A R K E T I N D I C AT O R S

Assumes 100-200m² shop Note: figures are rounded

$825/m²

**Assuming freehold where appropriate

The 2017-2018 cruise season was the busiest ever recorded in Dunedin, with nearly 190,000 passengers arriving in the city. This is expected to increase, with 119 ships carrying over 250,000 passengers penciled in for the 2018-2019 season, at time of report production. These trends are very positive for retailers in Dunedin, especially around the Octagon, which is a popular stop for passengers walking around the central city.


COMMERCIAL PROPERTY MARKET

OFFICE PROPERTY Trends • • • •

Strong business confidence resulting in higher demand for office space, with vacancy at historic lows Rents expected to remain steady or edge upwards due to low vacancy Trend towards converting and upgrading older buildings for office use continuing Older offices becoming more difficult to lease, with high cost of upgrades a deterrent to landlords.

C B D O F F I C E M A R K E T I N D I C AT O R S

GRADE

N E T FA C E R E N TS ( $ /m ² )

C A P I TA L VA L U E ( $ /m ² ) *

MARKET YIELDS (%)**

Prime

$190-$225

$2,235-$3,240

7. 2 5 % - 8 . 2 5 %

Secondary

$75-$190

$625-$2,235

8 .7 5 % -1 1. 0 %

Source: Colliers International Research *Assuming fully leased at market rates

**Assuming freehold where appropriate

Note: figures are rounded

RECENT REFURBISHMENT PROJECTS The trend for older, obsolete buildings/tenancies to be upgraded and converted to modern character office space in Dunedin continues. A few recent examples, which have added over 8,000m² of office space to the market, are: • • •

Former Harvest Court Mall, 218 George St 123 Vogel St, Warehouse Precinct 77 Vogel St, Warehouse Precinct.

Refurbished building at 77 Vogel St

Colliers International 43

COMMERCIAL PROPERTY YIELD COMPRESSION TRENDS Average Net Yield (%)

8.97%

2012

8.25%

2013

8.46%

2014

8.13%

2015

7.40%

2016

7.41%

2017


44 Colliers International

COMMERCIAL PROPERTY MARKET

INDUSTRIAL PROPERTY

INDUSTRIAL MARKET SUMMARY

$68/m² Trends • • • • •

Demand continuing to outweigh supply, with little prime stock available for either lease or purchase Very low vacancy in existing buildings and a lack of available freehold development land across the market Upward pressure on rents in good locations Limited opportunities for tenants to move premises or enter the market, especially for those looking for prime space Investor demand high, especially for prime freehold properties and those the Andersons Bay Rd area.

AV E R A G E WA R E H O U S E NET RENT

$113/m² AV E R A G E O F F I C E N E T RENT

8.6% AV E R A G E Y I E L D

48ha O TA G O I N D U S T R I A L Z O N E D VA C A N T L A N D

FEW OPTIONS FOR TENANTS With business confidence at high levels, many industrial occupiers in Dunedin are keen to relocate to larger premises. Faced with very low availability of prime premises, many are opting to stay put until the right option becomes available. Some are able to secure the opportunity to lease new design-build premises, such as Steel & Tube, which moved into its new facility in 2017 and the recently completed Calder Stewart development for Fletcher Steel on the ex-Carisbrook site. Newly-built, state of the art industrial properties have upped the ante for prime industrial rents in Dunedin City, which are now among the highest in the country.

I N D U S T R I A L M A R K E T I N D I C AT O R S PRECINCT

N E T FA C E R E N TS ( $ /m ² )

GRADE

C A P I TA L VA L U E ( $ /m ² ) *

MARKET YIELDS (%)**

Office

Warehouse

Prime

$130-$230

$70-$135

$ 1,1 7 5 - $ 2 , 2 8 0

$6.75%-8.00%

Secondary

$85-$135

$45-$85

$ 5 0 0 - $ 1,1 7 5

8 . 0 0 % -1 0 . 0 0 %

Prime

$100-$200

$60-$10

$825-$1,830

7. 0 0 % - 8 .7 5 %

Secondary

$65-$110

$40-$65

$420-$825

8 .7 5 % -1 0 .5 0 %

Prime

$90-$170

$60-$90

$710-$1,630

7. 0 0 % - 8 .7 5 %

Secondary

$55-$100

$40-$55

$420-$710

8 .7 5 % -1 0 .5 0 %

Inner City

Kaikorai Va l l e y

Mosgiel

Source: Colliers International Research Assumes 2,000 sqm building with 50% site coverage **Assuming freehold where appropriate

*Based on net combined rents of warehouse and office rents (assumes warehouse/office ratio of 80:20) and assuming fully leased at market rates Note: figures are rounded


COMMERCIAL PROPERTY MARKET

Colliers International 45

TRANSACTION HIGHLIGHTS Lvl 1&2, 248 Cumberland St

1 Bond St

43 Princes St

Sold: Confidential

Sold: Confidential

Sold: Confidential

Date: September 2017

Date: July 2017

Date: July 2017

Y i e l d : 7.5 %

Y i e l d : Va c a n t p o s s e s s i o n

Yield: Confidential

Freehold strata-titled office floors totalling 1,300m², anchored by lease to ASB

1,610m² building on a 324m² freehold site

Multi-tenanted building (with a vacant portion) on a 495m² freehold site

1 7 6 D u k e s R d , N o r t h Ta i e r i

6 & 17 Kitchener St

223 Andersons Bay Rd

Sold: $5,425,000

Sold: $4,449,540

Sold: $1,700,000

Date: February 2018

Date: February 2018

Date: March 2018

Yield: 8.6%

Yield: Purchased by owner

Y i e l d : Va c a n t p o s s e s s i o n

19,122m² freehold property leased to PGG Wrightson for a 10-year term with around six years remaining

occupier

2,565m² freehold vacant development site

Freehold property on two titles with combined land area of 14,661m²

Market Review & Outlook 2018 - 2019  
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