With New Zealand back in Level 2 lockdown, we caught up with Prendos’ Christchurch-based valuer Michael Tohill on how the region’s residential, industrial and commercial property markets are faring.
Since the 2010/11 earthquakes, the residential property market in Canterbury has been fuelled by a shortage of quality undamaged housing, leading to a substantial amount of replacement housing, repaired properties in established suburbs, and the creation of new residential suburbs. Michael says prices began to steadily increase from 2012.
“The Canterbury residential market reached its peak in 2016/2017 – coinciding with the completion of the insurer-led reinstatement rebuild Programme. The market began to return to ‘business as usual’, with natural growth and demand for new and existing residential properties.
“Today, the ‘as is where is’ earthquake damaged property market remains active, as insurers and EQC continue to settle outstanding claims. There’s still a large amount of trading, repair and redevelopment of these properties, and it’s a market that will continue in the foreseeable future.”
Late 2017 saw a ‘cooling off’ period, thanks largely to imposed LVR restrictions, a general tightening of lending requirements from the main banks and an increased level of new housing. However, by the latter part of 2019 Michael says the region started to see larger sales volumes and median price increases – that is until COVID-19 hit in March 2020.
2020: A New World
For Canterbury’s residential property market, early 2020 was buoyant, carrying on from the upsurge in late 2019 on the back of low interest rates and limited housing for sale. Despite the fact that news of COVID-19 was starting to ramp up, the residential market saw no change until late March, when New Zealand went into lockdown.
“The March/April lock-down period saw residential sales activity continuing,” says Michael, “albeit with 350 residential sales compared to the usual monthly average of 650 sales. The year-on-year July median sale price for Canterbury increased 6.7%, with a median house price of $476,000. Sales volume also increased 15.1% over the last 12 months, with average days to sell sitting at 34 days.”
From late April, in alert Level 3, the market sprung to life, with a huge amount of sales activity in Christchurch City, Rolleston and Lincoln in the Selwyn district, as well as Rangiora and Kaiapoi in the Waimakariri district. In fact, the Selwyn district is now the leading growth-area in Canterbury, with large scale residential buildings in Rolleston and Lincoln being fueled by both investors and first home buyers – who are enjoying a reemergence to the market.
“Low interest rates and the opportunity of assistance from some government agencies have given first home buyers the confidence to re-enter the market,” says Michael. “To a certain extent, first home buyers are underpinning the market and, in many cases, residential investors can’t compete as their returns are reduced with increased values and competitive offers from home buyers.”
Apartments & Townhouses
The central city residential apartment and townhouse market in Christchurch was very buoyant in 2019/early 2020 but, while this has continued after lockdown, Michael says there may be challenging times ahead.
“Many of these developments are built on the Air BnB model, which has changed significantly since the emergence of Coronavirus and subsequent border restrictions. Developers could soon be struggling, as many sales occurred in 2019 and the developments will be nearing completion, so purchasers will be settling in a very different world.”
Michael says Canterbury’s industrial property market remains strong and has been largely unaffected by COVID. The past five years have seen large expansion in Rolleston and in North Canterbury locations such as Rangiora, as well as within Christchurch City and in the peripheral locations as far south as Ashburton.
“Rolleston is approximately 30 kilometres South of Christchurch and has seen huge industrial expansion with the Midland Port, IPort and Izone developments. Its location on State Highway 1, near Christchurch City and the adjoining main trunk railway line, has been the main catalyst for expansion and has seen major national and international companies (particularly transport logistic companies and those relying on distribution of food goods) establish themselves there. Ngai Tahu Property also recently released their latest industrial subdivision, adjoining the already established industrial zone known as Tawhiri.”
Overall, Michael believes the Canterbury region’s industrial investment market is strong, with yields between 5.5–6.5% for well-located, quality property with strong tenant lease terms. Demand is high, with investors seeking better returns compared to other investment vehicles.
Recent auction sales activity indicates that demand remains for quality commercial properties in and around the Christchurch CBD.
“In late August,” says Michael, “one week’s sales saw four investment properties auctioned and sold with a yield range of 4.7% – 5.5%, suburban 6.0 – 7.5%. Yields are expected to remain in these bands for the next 12 months. Commercial investors are seeking quality properties with reliable tenants, but remain cautious of retail and hospitality tenants as this industry struggles in 2020 for obvious reasons. The most recent sales are of mixed use professional office, cafe and medical related businesses.”
With key location retail developments such as Cashel Mall, The Crossing, BNZ Centre and Riverside Market complete, it seems Christchurch’s CBD has reached peak redevelopment.
“We’re also seeing new low-to-medium rise buildings opening such as Spark’s new central city premises on the Square. The central city has promising occupancy improvement, with good leasing options that have seen continued relocation from the suburbs – where businesses relocated after 2011 earthquake. CBD rents have stabilised and leasing options are more limited in preferred locations.
“I think we’ll see increasing vacancies and decreasing rental rates continuing in the suburbs, as more new buildings and lease options become available in the CBD. However, the result will be a large stock of suburban office space that will keep the CBD honest.”
Michael believes that Canterbury’s property market is holding its own and is generally in good spirits, despite a difficult year for many industries – particularly hospitality, retail and tourism.
“The agriculture and construction sectors have remained constant, with many major infrastructure projects under construction or nearing completion – including the Southern and Northern Motorway projects, major city anchor projects such as the Cathedral restoration, Metro Sports facility, the Convention Centre and the soon to commence Christchurch Stadium. Residential construction continues to be strong particularly in the Selwyn and Waimakariri districts, and unprecedented construction is taking place in Rolleston and Lincoln towns, together with infrastructure and services.”
Traditionally, Canterbury’s housing market remains fairly constant, unaffected by the ‘boom/bust’ cycles that can occur in places like Queenstown and Auckland. The region’s growth is steady, and when the market does go quiet it generally ‘flat-lines’ and consolidates until the next growth period.
“For many years, the market was somewhat artificial, thanks to earthquake recovery and the redistribution of suburbs and new residential locations. It’s now clear that we’re back to a ‘business as usual’ model, reliant on natural steady growth.”
Michael believes the Canterbury commercial market has similar characteristics to the residential market.
“The CBD is now redefined, with its heart established and the next wave of commercial redevelopment approaching. However, unlike its residential counterpart, the commercial market may be paused for an extended period, with coronavirus and border restrictions having much more of an impact.
“The industrial market will continue to perform, with demand from expanding businesses in new and existing industrial developments. Investor demand also remains strong for both industrial and commercial property in the region. All in all, things are looking positive for the Canterbury region, and the buyers market is likely to continue as interest rates remain low.”