In this series, Tasos Stavrou, director of Global Business Development for Leading Real Estate Companies of the World®, discusses trends in Commercial Real Estate with members of the network’s Commercial Real Estate Think Tank. Leading Real Estate Companies of the World® (LeadingRE) is a global network of 550 top independent real estate firms, with over 200 of those firms specializing in the commercial arena.

Here, Mr. Stavrou is in conversation with John Ulrich, Commercial Manager for Barfoot & Thompson in Auckland, New Zealand.

The office sector is struggling with empty desks, while the industrial property market remains strong. Do you expect this to continue?  

Many companies are looking to pivot to a smaller space, often 20% and up to 50% smaller than what they were leasing previously, and there is still a flight to quality where companies will move to a better building but in a smaller footprint and still save money on the annual premises rental costs.

The traditional office space is evolving, resulting in an ecosystem that will accelerate the blending of uses between residential, hospitality and office space, and a shift in language from “office” to “workspace”. However, the physical office space is key to creating a corporate culture and recruiting and retaining employees.

Over the next two years, we are still going to see a continued increase in the vacancy rate in the Auckland CBD as the forecast vacancy in the CBD is set to hit 12.5% in September 2024, and the Metropolitan market is forecast to be at 8.6%. 

What strategies are landlords and businesses using to attract workers back to the office? 

Many businesses are opting for hybrid working - that is, a combination of on-site and off-site days for employees which means that workspaces are looking and feeling a little different. Hybrid is a new way of operating, still in its early stages, with many businesses trying to work out what success looks like.  

Workspaces are now being configured to facilitate this new, quite specific purpose. Some businesses have ‘re-worked’ their floor plan, by setting aside dedicated team-focused spaces or breakout rooms designed to encourage collaboration. Large private offices and cubicles are being swapped out for more flexible spaces and hot desks. There are sound-proofed or quiet areas for those who need to work undisturbed, and large, open lounge spaces, geared towards more casual meetings, spontaneous conversation and social interaction. Businesses are also putting employees first by providing the latest tools and technology to share information and collaborate, especially with remote team members. 

Office spaces are being equipped with ergonomic furniture, larger screens for video conferencing, big whiteboards, better lighting, and other comfort and wellbeing-based amenities, which keep workers’ needs top of mind. Part of it is making the office a place where employees actually want to return to. But it’s also about ensuring that teams have the support, infrastructure and flexibility to do their best work when they are there. 

This new world of hybrid is clearly still evolving. But on a positive note, we won’t be struggling with speed bumps forever. If the pandemic has shown us anything, it’s how adaptive humans can be.

Are ESG practices gaining more importance in the CRE sector? Which are the biggest sustainable trends to look out for in 2023 

There’s been a renewed focus on energy efficient buildings to reduce operating costs and efficiency upgrades to deliver permanent savings. A NABERSNZ rating is an effective way to measure the performance of a building over time.

NABERSNZ is a system for rating the energy efficiency of office buildings in New Zealand. It is an independent tool, administered by the New Zealand Green Building Council (NZGBC), backed by the government. Ratings are carried out by trained assessors. A NABERSNZ Certified Rating gives a star rating, from 0 to 6, that clearly shows your building’s energy performance compared to others.

The scheme is based on National Australian Building Environmental Rating System (NABERS). NABERSNZ has been adapted for New Zealand conditions by the Energy Management Association of New Zealand (EMANZ).

Use of NABERS in Australia has saved $792 million in energy bills and 5.4 million tonnes of CO2 emissions, that’s enough to power 494,000 homes for one year.

NABERSNZ ensures your building is compared fairly against its market peers. NABERSNZ is a straightforward way to measure the performance of your building, helping to make offices smarter, healthier, and more energy efficient.

How will the CRE industry respond to the global financial uncertainty, high inflation and a looming recession?

New Zealand’s economy grew faster than market expectations, increasing 1.7% in the June 2022 quarter. This level of growth suggests the economy may be running above its non-inflationary potential. The economy rebounded from the negative growth (-0.2%) in the March quarter supported, in part, by the return of overseas tourists giving the services sector a healthy boost. The outlook for the economy is complex with a range of positive and negative factors likely to influence future growth. Overall, the outlook is for average or below average economic growth.

Auckland was impacted more than other regions from COVID-19 restrictions. The region should experience an uplift now that these restrictions have been lifted, including increased inflows of overseas visitors and students. Ongoing construction activity should also support Auckland’s economic growth; however, the region’s negative population growth over the last two years may slow growth prospects in the short term. Auckland is the country's largest city, with the biggest manufacturing base, and is a key logistics hub. This is not expected to change. Consequently, although short-term performance may be volatile in the medium term, Auckland’s economy is expected to outperform the rest of the country.

Without any doubt the biggest challenge will be the cost of money and the availability of mortgage finance. Commercial lending rates have reached as high as 7.5% here in New Zealand and this is proving an obstacle to investment sales as Vendors of property, cannot or refuse to, meet the market.

We see a period of significant readjustment where we will be required to manage clients’ expectations and seek to close transactions at comparatively lower prices than the period of 2019-2022. 

Lern more about Barfoot & Thompson: barfoot.co.nz

Learn more about LeadingRE here: leadingre.com