New Zealand’s OCR reduction boosts market confidence
The third quarter of 2024 is shaping up to be one of the most important periods for New Zealand’s commercial and industrial sectors since late 2021.
The third quarter of 2024 is a crucial period following the Reserve Bank of New Zealand's decision to cut the Official Cash Rate (OCR) ahead of schedule. This move signals a shift towards economic support rather than restriction. Factors such as weak business and consumer confidence, slowing net migration, rising unemployment, and inflation outside the target band contributed to this decision. As OCR cuts continue to stimulate economic activity, the property market is expected to gain momentum.
Figure 1: RBNZ OCR Announcements
Source: RBNZ
Key themes that influenced the market over the past year – such as the flight to quality and location, hybrid working models, sustainability initiatives, and infrastructure constraints–will continue to shape the market. However, a noticeable shift in sentiment is expected to drive leasing and investment activity. This change will become more apparent in the data for the last quarter of 2024 and gain momentum throughout 2025.
For occupiers, improving economic conditions will lead to business expansion and the emergence of new businesses. Office space demand will rise, limiting choices and reducing rental rates and incentives. High-quality premises in prime locations will be in higher demand, but secondary premises might be considered if supply falls short. Occupiers also need to focus on talent retention and attraction, workplace optimization, and accommodating growth.
In the industrial sector, occupiers involved in logistics, e-commerce, and supply chain management can expect increased order volumes, creating a need for large storage spaces. This will drive a rise in construction activity. Consequently, demand for warehousing and distribution facilities will increase, reducing available sublease and vacant spaces and resulting in higher rental rates.
With improved economic conditions, lower interest rates, and job stability, consumer confidence and disposable income are expected to rise. As a result, retailers will see increased sales and foot traffic, enhancing demand dynamics in the retail sector.
For investors, the changing market conditions present investment opportunities across various asset classes and geographical hotspots. Investors need to reassess their risk profiles and capitalise on emerging trends before competition intensifies. Sustainability will be a key consideration, with investors prioritising assets that align with environmental goals and attract socially conscious occupiers.
New Zealand remains attractive to offshore investors due to the business-friendly environment, favourable tax structures, long-term return profiles, and high transparency scores. Thorough market analysis to identify growth areas and understand evolving demands will be crucial for investors. Conducting due diligence and preparing for expected market shifts is essential.