CONSTRUCTIVE THINKING 25 lucrative property trends

CONSTRUCTIVE
THINKING
25 lucrative property trends
Issue
02
April 2015
Demographic trends that
investors can get behind
You could call this a “cheat sheet” for what you
should be doing with your money. A full blown
list of the New Zealand property trends that are
poised to make people billions.
To us, this is a compilation of what we talk about
around RCG. It’s both inspiration and robust statistics two things that play a big part in what we do best.
You can’t create a commercially successful environment
without a bit of both.
Whittled down from 45 down to 25, this list spotlights
the most lucrative trends that property people can
get behind. Most of all, this list shows where things
are going.
“Research, with its interplay of data, theory and
prediction, is the most powerful resource.”
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Issue 02, 2015
Locality and convenience key
Locality and convenience will be major influences as time becomes
increasingly valuable to us. This will cut across all property sectors,
particularly in retail, residential and office. We will look for locations
that are within easy reach of end users – close to road links and public
transport. In Auckland, sites close to train stations will be particularly
lucrative. Carparks will continue to be critical.
International investment growing
Growth in international investment will push property prices up. New
Zealand’s property returns are high and less risky by overseas standards.
This will support property prices in areas that are internationally attractive.
In 2014 the Singapore Government invested $1.2 billion into the Westfield
shopping centres and Wynyard Quarter developments. Expect to see more
of this happening and property prices increasing as a result.
Education better using land resources
Schools and tertiary providers will innovate to get more out of their
land resource. With booming land prices and flat education budgets, a
sound property strategy and master plan are crucial for future academic
success. Good retail stores can make a commercial contribution and
improve vitality on campus. The University of Auckland and Unitec are
facing different pressures and making bold development moves.
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Specialty precincts gain traction
Specialty precincts will increase their pulling power. The value of branded
precincts is becoming recognised across entertainment and specialty retail
sectors as convenience and accessibility further determine consumers
choices. Clustering of like retailers and businesses is a long standing
practice that has been used by banks, healthcare and discount retailers
since the 1990’s. The success of this trend hinges on a developers’ ability
to create the right mix and identity, one that taps into a lifestyle.
Auckland’s “Third Ring” to develop
Auckland’s ‘Third Ring’ will be a hot zone for new mixed use development.
Brownfield sites filled with industrial services (warehousing, manufacturing and distribution centres) form a ‘Third Ring’ around Auckland’s
central suburbs. Many areas in this zone, like Onehunga, and New Lynn,
are ready to be developed. Where brownfield sites have become surrounded by medium density housing and offices, and where industry
is quiet and low emission, these are lucrative spots for new mixed use.
New flexible master planning approach
The value of a flexible master plan will increase. As property and land
prices continue to grow, so will the need for master planners. Most
importantly, we will see a trend for planners to create both short and
long term strategies for land development. i.e. a 10 year plan that
makes good use of strong local demographics along the way and
provides a holding income for later, more intensive development.
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Issue 02, 2015
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City schools to intensify
Inner city schools will intensify, and brownfield sites will be redeveloped.
Schools in growth areas are figuring out how to accommodate increasing
student numbers. Looking at Auckland city, the pressure is most intense
in Devonport, Waitemata, Albert-Eden and Orakei. These areas will
benefit from a sound master plan and development strategy.
Top Auckland “Inner City” growth areas
Top Auckland “Inner City” growth areas for schools
25,000
Albert-Eden
Devonport-Takapuna
15,000
Orakei
Student Roll
students
20,000
Waitemata
10,000
5,000
0
1996
1999
2002
Devonport-Takapuna
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Issue 02, 2015
2005
Year
year
Waitemata
2008
2011
Albert-Eden
2014
Orakei
“In these areas it’s not as simple
as buying land for a school in a
new subdivision. Existing schools
will need to intensify, or the Ministry
of Education needs to look out for
brownfield redevelopment sites.”
John Long, director
Read about our work with St Mary’s.
We’ve created a compact master plan
and prioritised new builds to match
the schools roll expansion and mission.
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Hotel investment growing
Investment in hotels will grow again. New Zealand hotels are running
at near-full capacity. Auckland, Queenstown, Rotorua and Wellington
are all experiencing strong growth in occupancy, some at record levels.
In Hamilton and Auckland Tainui is already making strong moves in
this market. There’s a significant gap in New Zealand for resort and up
market hotels. Serviced apartments are also likely to expand aggressively.
Interest rates lower for longer
Interest rates will remain lower for longer. Interest rates are low around
the world, as is inflation and it is increasingly clear that this is the new
normal. In New Zealand lenders are offering long-term finance at low
rates, most interestingly TSB has come out offering 10 year mortgages at
5.9%. Similarly, office owner Precinct Properties has locked in funding
from US institutions for 4.2%.
Retailers meet global standards
New Zealand retailers will meet global standards. New Zealand
consumers are increasingly aware of experiences and products available
around the world. This is shaped by the gradual push of overseas
retailers into Australasia, and increased access to overseas retailers
online. Retailers here will lift their brand experience on par to their
global counterparts, but with a local twist.
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Residential to adjoin shopping centres
Hotels and apartments will adjoin shopping centres. It’s an idea
that has been considered before but is gaining traction as demand
for higher density accommodation increases. By adding residential,
shopping centres can get more value out of their land, and add to
their catchment.
“This will turn shopping centres
into real town centres and add
round-the-clock activity”
This will turn shopping centres into real town centres and add
round-the-clock activity to places which become passive after 6
o’clock. Bear in mind, this opportunity will be very centre-specific.
We’ve heard Milford, Pakaranga and The Warehouse Group are
considering this tactic.
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Issue 02, 2015
“Milford Mall could have around 200
apartments and generate $30 million in
profit for its owner. We could see hundreds
of millions of dollars’ worth of residential
development above shopping centres in
the next 10-20 years.”
Des Wai, director
Read about our work with Pukeroa
Oruwhata. Rotorua Central was once
an abandoned railway yard. Now it’s a
powerful, regional shopping destination.
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Civic, the growing anchor
Anchor institutions will activate the prosperity of lacklustre centres.
Government and developers alike will invest in community revitalisation.
Civic institutions, like schools and medical centres, generate high levels
of activity and build more connected communities. “Eds, meds and feds”
as they say in the USA. They participate in local and national markets,
employ hundreds of workers, and purchase from other businesses.
Auckland to outperform in tourism
Auckland will continue to outperform in tourism. Auckland has long
been the pace setter in many categories, but tourism is a new one.
Helped along by public investment in international awareness of
the city, and places like Wynyard Quarter and Queen St. In the last
five years “guest nights” stayed by visitors to Auckland have risen 28%
from 5.4 million to 7.0 million.
Apartment and terrace housing boom
Apartment and terrace housing developments will be increasingly
popular. Even though the trade-off is having less space, when there’s
high demand for land these homes become incredibly popular for
their location and price. The demographics support it – baby boomers
are looking to downsize, and young adults are having fewer children.
Now is the time to build.
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Shared and serviced offices taking off
More businesses will move into shared or serviced offices. 1.3 billion
people are working mobilely around the world, and that number is
expected to double by 2018. But human contact is as crucial as ever to good
business. Shared spaces offer a flexible working capability but also create
opportunities to connect and network. Serviced offices provide companies
with everything they might need, including IT maintenance and mail
collection, to allow them to focus on growth. What they need to work
on now is sociability.
Retail emerging along transport hubs
Retail opportunities will emerge wherever there are plenty of people.
“Travel retail” is a common term overseas – retailing in airports or transport
hubs – and New Zealand is just starting to catch up. Our airports are on
top of the trend, but look for more retail interest in train and bus stations,
motorway service centres and so on. This is also a growing opportunity for
hospitals, universities and other sectors.
Mixed use guides will be defined
Mixed use developments will only succeed if controls are put in place.
This begins with the creation of a demographically sound mix and the
design of a brand identity that attracts it. Then the body corporate
rules need to be written to match, striking a balance between the
needs of residents and retail tenants, and controlling things like noise,
parking, maintenance and signage.
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Our food culture is growing in sophistication
New Zealand’s food culture is booming and growing in sophistication.
Its effect is felt most in the hospitality sector, where leading operators
are responding to the market and transforming their offer to be fresh,
fast, tasty, stylish and innovative.
Channels and formats are being re-imagined and taking off as a result.
Think farmers markets, specialty grocers, food trucks and the lucrative
My Food Bag. Our research suggests the market is far from oversaturated,
but as competition continues to ramp-up, the weaker operators will
be pushed further out of the city to the fringe.
Read about our work with Farro.
This beloved and commercially
successful grocer has won a
global retail award.
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Development process more efficient
Government and councils are making development easier. National
has signed Housing Accords with several councils as a stop-gap measure,
giving a streamlined consenting process in some areas. Once refined,
this process should be applied elsewhere. There are still hurdles when
developing all types of property in New Zealand, but now there is active
recognition that it needs to be made more efficient to meet demand.
Joint ventures and partnerships evolving
The traditional boundaries of joint ventures and partnerships are evolving.
Joint ventures let business partners share the risks and rewards of a
new enterprise. A smart partnership means both skills and resources
are pooled. Great examples are The Mind Lab by Unitec, and Barworks
by DB Breweries and JAG Hospitality. Expect to see some unexpected
and lucrative relationships forming across sectors and scales.
Design will reshape the quarter acre dream
Good design will give multi-unit developments the right appeal.
The dream of owning a family home on a quarter acre property is
hard-wired into the Kiwi psyche. Developments that have a mix
of activity and human centred design will rewire the market.
Designers must break a few traditions and create higher density
living that has the right amount of light, space, village like
communities, green edges and pocket parks.
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‘Grey dollar’ is most influential
The ‘grey dollar’ will determine the shape of all sectors. The baby
boomers are now empty nesters. Most are seeking leisure time,
new experiences, or retirement - but on their own terms - and they’re
creating a strong market demand along the way. Baby boomers
control a big share of national income and wealth. Their effect will
be most influential to travel, leisure, healthcare, retirement,
hospitality, fashion, and residential facilities.
“Baby boomers make up around 25%
of New Zealand’s population, but have a
much larger influence on the economy.”
They earn a total of $40 billion - 35% of the country’s income and they control close to 45% of national wealth.
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Issue 02, 2015
“71% of baby boomers own their home,
compared to 41% of other New Zealanders.
On top of this, they’re major property
investors and landlords.”
John Lenihan, director
Click here to experience an
interactive map of Auckland.
And find out where our Baby
Boomer generation are living.
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Surrounding amenities gain importance
Proximity and amenity are the key to attracting staff, residents,
shoppers, or the stakeholders that make places hum. Prime CBD
locations will continue to do well in the next decade. Office parks and
edge-of-town subdivisions will need to have their own selling points.
It’ll take more than just a great internal environment; externally users
expect a strong level of nature and parks (peace and quiet), nearby
hospitality and service shops, and transport access.
A smarter way to retail
Shopping centres will lead the way to a smarter retail experience.
New Zealand shopping centres will use mobile devices as a means to
analyse physical shopping habits. Expect smarter shopping and parking,
with features such as guided navigation and personalised recommendations. This tracking data will then be used to optimise and experiment
with store layouts and retail experience.
Growing international visitor numbers
Tourism operators need to invest more in their facilities and have an
eye to their next one. International visitor numbers to New Zealand
grown 5% to 2.86 million in 2014, and are expected to reach 3 million
this year. But tourists are increasingly time poor and they want new,
unique experiences during their brief stays in the country. Tourism
operators can capture more spending by redefining their offer, clustering activities together and making more intensive use of their sites.
“International visitor numbers grew 5% in
2014 and are expected to reach 3 million
this year. Capture more spending by
redefining your offer, clustering activities
together and making more intensive use
of your sites.”
John Polkinghorne, associate director
The Bottom Line? It’s all
about peoples experience
This publication contains some bold and
diverse predictions, but if we really think
about it, every single one of them boils down
to one thing: understanding your market and
improving their experience.
Keep this in mind whenever you’re pondering which
direction to take your property. Always ask yourself
if your efforts are truly making life convenient, safer,
and more enjoyable for your end user. Stick with
that strategy, and you’ll be just fine in the future.
And if you’re looking for insights about these trends,
give us a call, read our in depth articles on the RCG blog,
or check us out on Twitter and LinkedIn.
We’re property, architecture,
design and research experts
and we create commercially
successful environments.
rcg.co.nz
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