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Taranaki commercial market update – Q3 2023

See below for a summary of the biggest trends in the Taranaki commercial market, plus an outlook on the next 12 months.

Tight industrial markets

Industrial markets are facing low vacancies due to ongoing demand for warehousing. Industrial rental rates have been growing across the region, with tenants increasingly interested in design-build opportunities.

Tenants recommitting to the office

Post-pandemic ways of working have changed the nature of demand for space. Hybrid work has often led to occupiers using less space for desks but more space for collaboration.

Prices stabilising for development land

Softening yields and higher construction costs have taken the pressure off prices for development land. Construction costs are starting to stabilise as supply chain issues are resolved and subcontractors become more readily available.

Outlook for the next 12 months

The commercial property market subdued

The local market is experiencing similar trends to those seen nationally, with generally lower sales volumes and some sub-sectors experiencing downward prices. Leasing activity is expected to remain reasonably buoyant.

Yields stabilising at higher levels

Rising interest rates have led to a softening of yields across most markets. Signals that inflation and long-term interest rates have peaked mean yields are likely to stabilise at higher levels. Lower numbers of sales transactions mean there is less evidence available to showcase this trend.

Higher rents are needed for new builds to stack up

Reducing yields largely offset the impact of higher construction costs during 2020-2021. Softer yields and persistently high construction costs mean higher rents are needed for new developments to be feasible.

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