“Everyone is rethinking the role of real estate,” says Property Council New Zealand CEO Leonie Freeman. But we’ve got time to figure it out, because our industry’s role at the heart of communities remains secure, she says.
Freeman, who was appointed CEO of Property Council New Zealand in December 2018, has an unusual breadth of industry insight, having held top positions on both sides of the private and public divide.
In 1996, Freeman created the concept of what is now realestate.co.nz, one of the first commercial real estate websites launched in New Zealand. She also built a residential property management business, which she sold in 2007, and acted as a strategic property adviser to the Auckland Council.
Freeman, who has been an independent director of Goodman Group since 2011, also spent 18 months as the general manager of development for Housing New Zealand, gaining deep insights into social housing. She’s used this knowledge to drive a philanthropic initiative, thehomepage.nz, which was established to fix Auckland’s housing crisis.
Today, Freeman champions the interests of more than 600 member companies, and 10,000 professionals, with a collective $50 billion investment in New Zealand property.
Industrial and office insights
Freeman sees a lot of similarities between the Australian and New Zealand markets.
“We went to a more serious lockdown earlier on than Australia, and that had a bigger economic impact, but we were able to get rid of the virus earlier. We went back to level one relatively quickly – retail reopened, people returned to offices and life got back to normal,” she says.
“The second lockdown has been a bit of a reality check – people have realised we could be living with this for a while.”
As in Australia, New Zealand’s industrial sector has been relatively immune to the virus, Freeman explains. Demand for logistics and warehousing grew during the peak of the pandemic, and the impact on values has been negligible. “We’ve seen a few transactions since restrictions eased and values are back to pre-COVID levels.”
In the commercial sector, remote working has driven a lot of companies to rethink their space requirements, but Freeman is sceptical about claims that the office is dead.
“We’ve been on a journey for a number of years around workspace – from enclosed offices to open plan to activity-based working – as technology improves and encourages more flexible working. COVID has shown us there are even more options, but I don’t think we’ll ever get to the point where businesses will let go of their offices entirely. There will always be a role for the CBD headquarters.”
Freeman isn’t aware of significant changes in occupancy levels yet, because companies are generally tied to long leases. “But a substantial amount of space is up for sublease. I’ve been told the figure is around 46,000 sqm in Auckland alone.”
Freeman says it is too early to tell how the virus will influence values of office assets. “We are aware that some developments have been put on hold.”
Retail’s role in community
Retail has been “really interesting and challenging for many tenants and landlords alike”, Freeman adds. While tenants here were hit hard early and everything shut except essential services, “we also saw people really keen to get back shopping after lockdown”.
The rapid return of customers to retail malls pleased Freeman, but she says this underscores the central role that bricks-and-mortar retail plays in creating community.
While Australia’s federal government introduced a mandatory code of conduct for commercial tenancies, this was not the case in New Zealand. “There was a temporary change to timeframes if tenants or landlords were unable to pay rent or mortgages. The vast majority of our landlords and tenants got together to solve the problem,” Freeman says, adding that she understands more than 90 per cent came to agreements. “But it has been a challenging time for all.”
The New Zealand Government subsequently “proposed a change to all commercial contracts to require mandatory arbitration but the legislation didn’t pass”. A voluntary arbitration is still on the table, “but we are yet to see the details”.
“The vast majority of landlords and tenants did the right thing,” Freeman adds.
“We’ve seen some poor behaviour from a small number of large tenants, who stopped paying rent the day we went into lockdown. That was pretty disappointing. But in general, we’ve seen landlords want to do the right thing to keep their tenants in business.”
CBD retail remains a big challenge. Foot traffic along Auckland’s Queen Street is around 25 per cent of pre-COVID levels. But shopping malls are getting “reasonable levels” of foot traffic. Hospitality and tourism businesses are under “significant pressure”.
“Some of the media in New Zealand are saying we won’t have offices or shops anymore – and that’s completely wrong. People will still want to get out, go shopping and interact with their community. Yes, we can all do stuff online but at the end of the day people want to engage with other people.”
Optimism in turbulent times
The residential market is also a fascinating case study. Uncertainty has limited the number of sellers, but a flood of Kiwis returning home from overseas has increased demand. “Interest rates have dropped, but we still have the challenge of supply. Pricing is back to pre-COVID levels, if not slightly higher.”
Freeman is also hearing stories that the pipeline of new homes is drying up. A survey of property developers, conducted by Property Council New Zealand in May, found around 70 per cent of commercial and industrial developments were classified uncertain, on hold or undergoing a rethink.
“In the residential sector it was around 50/50, but there is more certainty because the New Zealand Government is undertaking a major social housing program.”
Despite the turbulent times, Freeman remains optimistic about the future.
“The property industry has been here before – we’ve seen changes in the market, whether it’s the GFC or the 1987 stock market crash. As a sector we are resilient.
“The property industry – both in New Zealand and Australia – plays such a pivotal role in the success of our cities and communities, and that won’t change. We need to remember the importance of what we do. And we need to remember out of times of challenge and crisis come opportunities.”