Previous cycles have shown that Official Cash Rate (OCR) cuts have preceded periods of economic growth — a prospect that is already positively influencing investor sentiment
Results from Colliers’ latest survey of commercial property investor confidence clearly show the impact of the Reserve Bank’s decision on sentiment. Looking ahead, the survey — which gauges expectations of market fundamentals over the next 12 months — revealed that national confidence rose to a net positive (optimists minus pessimists) of 10.4%. This latest result halted the downward trend in sentiment, which had been evident since the start of the year and saw the index dip into negative territory in June (-5%).
Results of the confidence survey have been volatile since 2020, initially due to the impact of the COVID-19 pandemic and the economic response to it, and more recently due to the tightening of monetary policy aimed at combating inflation.
Investor sentiment has closely tracked overall economic performance over the long term. Sentiment reached record lows during the Global Financial Crisis (GFC) but rebounded as economic growth resumed, driven by the Reserve Bank of New Zealand’s decision to cut the OCR from 8.25% to 2.5% between July 2008 and April 2009. The economy’s robust performance from 2014 through early 2020 saw investor sentiment holding at elevated levels.
Positive sentiment has also closely correlated with levels of transactional activity, as shown in the graph below. Both the number and total value of transactions steadily increased in the early 2000s. However, the significant economic disruption caused by the GFC led to a sharp downturn in sales. Transaction activity subsequently rose alongside a strengthening economy, enjoying an extended period of stability prior to 2020.
Sales have been subdued over the past two years, but there are signs that, following the volatility of 2020 to 2022, the traditional links between economic performance, investor sentiment, and market activity are being re-established. As the economy returns to growth, aided by lower interest rates, an increase in transactions can be expected to emerge in 2025.
Provisional sales data, sourced from CoreLogic, shows the total value of commercial and industrial sales, in the year to June to be $5.32 billion. Delays to reporting will see this figure increasing, however, the final total will fall significantly short of the $9.88 billion annual average recorded between 2015 and 2023. Sales activity over the 12 months to June was primarily driven by the industrial sector, which accounted for approximately 60% of sales by value. Sales in other sectors were relatively balanced, with retail property sales comprising 16% and office property 12.5%.
Regionally, 45% of sales by value in the year to June occurred in Auckland, which, while well ahead of other regions, is below the 10-year average of 52.5%. The Wellington region was the North Island’s next largest contributor to sales comprising 10.3% of the total value. Canterbury led the South Island, accounting for approximately 16% of national sales by value, slightly above its 10-year average of 12%. The rest of the South Island contributed an additional 8%, surpassing the longer-term average of 5.5%.
