Property post COVID-19: where are the opportunities?
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Property post COVID-19:
where are the opportunities?
APRIL 2020
increasingly complex and purpose built distribution
centres can take 18-24 months to build. Industrial
is likely to be the clear winner in the aftermath of
COVID-19, with even stronger demand. The listed
Paula Ormandy property companies were already fighting over those
Partner
industrial sites which came to market pre-2020, and
Matthew Ockleston as yields drop in other asset classes, valuations of
Partner industrial properties are likely to rise. Anecdotally,
the crisis has highlighted the need for supply chains
to be strengthened closer to home, and the demand
With everyone currently focussed on the for warehousing will increase as the risks of a “just
possibility of shortly moving to Level 3 and in time” supply chain have been realised. This will
be especially true if New Zealand successfully
exactly what that means for us all, it’s hard
comes out of this crisis before the rest of the world
to imagine a world in which we once again (which looks likely). Fortress New Zealand will require
shake hands with strangers. But let’s fast lots more manufacturing and warehousing on site –
forward to a Level 1 world (at least in New gone are the days of relying on AliExpress/Alibaba
Zealand) and crystal ball gaze into a post to backstop your retail supply chain.
COVID-19 property industry… Office – back to the future?
It doesn’t take a genius to predict that the COVID-19 As I write this, I’m sitting in a fully functioning home
global health crisis or “GHC” will have an ongoing office with two screens, decent coffee and my Ugg
impact on the economy which will reverberate boots on. In spite of the naysayers, we’ve now been
through the property industry for years to come. forced to acknowledge that basically every office
As always with times of economic uncertainty, there job really just involves email and phone calls and
will be losers, but there will also be winners. Thinking can in fact be done from home. Even finance, and
about the implications of the events of the last few the adrenaline junkies on the trading floor, some
weeks and globally, the last few months, on the three of the last holdouts, have had to find ways to work
traditional asset classes – industrial, office and retail remotely. Of course, collaboration is important, and
– highlights the differences that we might see. the office is not dead. No one wants to continue
the grand social experiment of remote working and
Industrial – a safe haven
home schooling and many of us are hankering for
Industrial remains a highly desirable asset class a return to the office. But will all our millennial staff
in the New Zealand market - decent industrial race back to a 9-5 (or 8-6+) face time (rather than
sites, especially those close to town and transport FaceTime) heavy culture? It seems unlikely – there’s
routes, have been highly sought after for years. no getting this genie back in the bottle – flexible
Warehousing and logistics sites have become working will become the norm.
1 • Property post COVID-19: where are the opportunities?
So does this mean tenants will need less floor space? Co-working will be an immediate casualty (given
An increase in flexible and remote working, coupled the short term contracts). It will take some time
with the projected high unemployment rate, would before the full effects of the changes play out
suggest as much. However, it may be instead that in more traditional office space, as we wait for
office layouts change again, in a way that requires renewals and expiry of existing leases.
similar floor areas for fewer staff. Take hot-desking.
Retail – anyone keen for entertailing/
It turns out that the first businesses to have to send
retailment now?
their employees home were the proud proponents
of hot desking. No one wants to share desks in Online shopping has been rising for years, and
a petri dish, and for those workers returning to office shopping centre owners have increasingly focused
buildings internationally, there has been a strong on retail as entertainment. We’ve struggled for
desire for more space and reconfiguration of office more than a decade to work out how commercial
layouts. Does this mean we go back 20 years and end landlords can get a cut of the online shopping pie
up with allocated desks and high partitions again? (turnover rent) when people browse in person and
then buy online. Shopping centre owners were
Work is already being done on new office fitouts
relying on the shift to entertailing to counteract this
with allocated desks two metres apart (or 1.83m if
trend, but how soon will people want to return to
you use the international 6ft social distancing rule).
window shop even in the gorgeous new malls (or
An international occupier commented that “if we
eat in one of those stunning food and beverage
need to reduce our headcount and move to other
offerings that Westfield Newmarket and Commercial
locations in order to achieve the desired distance,
Bay were opening)? We’ve now all had a crash
we are open to doing that”. With this increase in
course in completely online living – a cultural change
space for individuals, new office fitouts are also less
that was probably 5-10 years away has happened in
likely to bother with quiet rooms – why pay for office
a matter of weeks. There may be some more retailers
space for deep thinking when your staff can do that
opening online-only centres (like Countdown, and
cheaply and productively with a day or two at home.
some of the offshore UberEats restaurants) but
And sadly, it turns out that co-working spaces are this won’t shore up retail asset values. The smaller
likely to be a casualty of the GHC. Some of them suburban shopping strips were already struggling,
are beautiful (the B:HIVE was voted the best office so COVID-19 will have sounded the death knell.
in the world in 2019). But the business model relies
So where to from here?
on the buzz of interacting with random strangers,
something that habit change researchers suggest New Zealand will continue to be a safe harbour
will feel foreign to us for a long time to come. for offshore capital. But to the extent that offshore
Pre COVID-19, co-working spaces lowered office money is distracted by the ongoing COVID-19
vacancy rates (especially in Auckland) and inflated issues globally, or in the case of offshore pension
rentals, arguably artificially. There has already been funds, are coming under pressure to invest in their
international scrutiny of the model, triggered by own economies to support domestic growth rather
WeWork’s failed IPO last year, and the model has not than investing in ours, this could be the chance for
been through a recession. Gut feeling is that many New Zealand funds to step up and take advantage
of those smaller businesses who were the initial of a potential gap in the market at a time of record
occupants of the coworking spaces may not survive, low interest rates. Just buy industrial, hold premium
or will retrench to home offices to save costs, while office, sell B grade office (or do a dodgy conversion
the larger businesses may revert to their fixed leased to build to rent) and sell retail assets unless you can
space (both because the number of desks needed find a way to take a cut of the online sales...
drops, and for health reasons).
2 • Property post COVID-19: where are the opportunities?
Key contacts
Paula Ormandy Matthew Ockleston
Partner Partner
D +64 9 915 6544 D +64 9 915 3350
M +64 21 915 024 M +64 21 582 429
paula.ormandy@dentons.com matthew.ockleston@dentons.com
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3 • Property post COVID-19: where are the opportunities?
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