Demand is still strong at Tauriko Business Estate and new developments are going up, says Ray White Commercial managing director Philip Hunt. Photo / George Novak
Commercial real estate in Tauranga is facing uncharted territory as tough economic times take hold and businesses face the ''deepest recession since the Great Depression''.
One agent is ''fearful for the CBD'' and believes the problem has been compounded as all the land at Tauriko Business Estate has been sold.
The real estate companies are bouncing off record highs with some reporting a 30 per cent increase in sales in one year and although they agree the city will fare better than others, Tauranga will not escape the impacts of Covid-19.
Ray White Commercial managing director Philip Hunt said he remained extremely confident about the future but his biggest concern was the CBD.
He believed there would be some levelling off and some businesses could close.
''The thing that really scares me the most is the CBD and we are going to need a major recovery plan put in place for those businesses. Even with Farmers coming back and other developments there will be a bit of reluctance from people to sign up for three-year leases and we could see some rent reductions.''
Hunt said it had more than 20 per cent growth in commercial sales and leases for the past two financial years and he had been heavily involved with sales at Tauriko Business Estate.
But he said unfortunately it was a Catch-22 as the last stage sold out in two days.
Inquiries from businesses looking to move into larger premises was strong and he was working with eight tenants, including one looking to move from Auckland in the next three months.
Colliers International Tauranga managing director Simon Clark said the total value of properties sold for the 2019/2020 year to March was 30 per cent higher than the same timeframes in 2018/19.
Leasing had also been ''very steady'' over the past two years, he said.
''We are still doing a lot of lease deals in the industrial sector but it has been a bit slower for office, and particularly retail, which has been hardest hit with the lockdown. We haven't seen any real drop in rentals yet.''
Meanwhile, there was strong demand for quality tenants in Tauranga/Mt Maunganui and commercial property values had hardly changed because of lowered lending rates.
Clark was also optimistic.
''I think the Tauranga/Mt Maunganui market will continue to do better than other regions due to our strong population growth and strong local economy, particularly after a bumper kiwifruit crop and with forestry doing much better since we have come out of the lockdown.''
Bayleys commercial sales manager Mark Walton said demand for commercial and industrial space had grown strongly as the local economy boomed off the back of a fast-growing population, thriving agricultural industries and record trade volumes.
The sector had delivered a raft of new property as development ramped up to meet demand and vacancies have hit historical lows, intensifying upward pressure on rents, he said.
''Tauranga's commercial property sector is entering the 'new normal' from a position of strength and the region's economic makeup promises future resilience.
''Those buildings in good locations and with strong tenants we believe there will continue to be strong buyer interest. But secondary buildings with weaker tenants on short leases there's likely to be less demand and this will be reflected in the price with the yield range widening.''
Walton said between 2012 and 2019, annual investment sales averaged around $210 million and prime industrial yields now ranged between 4.5 and 5.5 per cent – tighter than office or retail yields.
Element IMF Ltd director Bryce Donne said all of the available land for sale at Tauriko Business Estate had been sold.
''There is still land available yet to be built on for design/build/lease solutions. But we do not expect any significant further land release over the next 24 months.''
Donne said projections of long-term demand for business land was undertaken at the time of the original zoning of Tauriko Business Estate in 2006 and consultants estimated 11ha would be provided at the site every year. On average it worked out to 10ha a year.
But demand over the past four years has been considerably higher, he said.
''The average size of lots sold has increased considerably, with bigger businesses moving to the region and requiring larger sites.''
Now its focus would be on finishing works already started, building on the amenity values of the estate and advancing the bulk infrastructure needed to enable the next stages to progress, he said.
Fletcher Building this year said it would invest about $400 million into a state-of-the-art new plasterboard facility at Tauriko, which was expected to open in 2020 and provide jobs. But last week the company announced plans to lay off 1000 staff in New Zealand, equating to around 10 per cent of its workforce.
Priority One chief executive Nigel Tutt said the Covid-19 economic shock would be difficult for many small retailers and hospitality businesses and the CBD ''is a little more exposed to other locations right now''.
''But we're certainly not expecting an exodus of businesses. On the positive side, future development interest has been strong over the lockdown period, and we are really positive about the longer term outlook for the CBD.
''We're expecting more office and accommodation developments alongside the CBD playing a key role in the Te Papa peninsula intensification – watch this space.''
Tutt said the Winstone Wallboards factory at the Tauriko Business Estate was also hugely positive for the Western BOP economy.
Tauranga Chamber of Commerce chief executive Matt Cowley said most people can see that the CBD's long-term future was bright.
''We all need to do what we can to help many businesses get through what will be a tough winter. It is in everyone's best interests for tenants to keep operating.
''Tenants and landlords will need to develop innovative new approaches to keeping tenancies occupied.''
ASB chief economist Nick Tuffley this month told NZME he estimated by the end of the year the economy would be 7 per cent smaller than the same time last year because of Covid-19.
''This is undoubtedly the deepest recession we have had either since World War II or the Great Depression."
Debt could rise to 50 per cent of GDP over the next four years and take decades to pay down, he said.
A Westpac May 2020 Covid-19 special edition said it expected the Government's net core Crown debt to rise to about $180 billion by 2024.
''New Zealand is now in a deep recession.''
The report estimated the unemployment rate would also rise to 9.5 per cent in June – the highest level in 27 years.
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