Wellington member Sumukh Paranjpe of Stride Property provides his perspective on investment in our nation’s capital city.
I think we need to start by digging into why one would look at Wellington as a location to do business in or invest in over its bigger brother north of the Bombay Hills. I didn’t grow up in the windy city, however my perception of the once labelled ‘coolest little capital’ has been that Wellington was always a city with a strong economy. Yes, there are core fundamentals we rely on such as the government workforce, which likely contributes to why we are one of the highest paid regions (on average). However, it has a strong diverse economy with industries such as the tech sector, creative industries, as well as the ever-controversial professional services offered largely taken up by our friends sitting in the beehive, which all provide a stable sound economic foundation.
Then there is the skilled workforce, which coupled with internationally recognised universities, several research institutions and start up ‘incubator type’ organizations, make it an ideal location for continued innovation in business. Parking the current state of the economy with the very rising high cost of living, Wellington has been perceived as a location where you on average have a good quality of life, making it an attractive destination for businesses to lure in professionals and their families.
With the investment side of things, Wellington has in my opinion always had generally good demand for commercial property, being the second biggest commercial property market after Auckland. Yes there are always speed bumps over the years, but by in large there is always a constant need for office space, retail outlets, our well known café/bar/hospitality scene and the ever tightly held industrial properties. If there is no continued investment in these spaces that create homes for these businesses, where are employers and their consumers to go?
Whilst one could argue the geography is shaky to say the least, its constraint in land lends itself to have created an upward pressure of strong rental growth in most property sectors, particularly industrial and commercial. This provides higher yields compared to other markets in NZ. Yes, more recently there has been a continued punish on the Wellington region and its landlord owners, by insurers and local council alike, for ever increasing premiums and municipal rates. However, in the commercial sector and for certain assets within that sector, there has been a recent shift whereby tenants are prepared to pay the freight to occupy such buildings. As I alluded to earlier, yes, we rely on the government sector making up 40% of office CBD space, but why wouldn’t you work to make an investment work based on the demand that lies in that region? In saying things, more work could be done by the government to help commercial building owners in the form of further tax incentives and favourable regulations that encourage and stimulate investment in the region.
As with all investments there are challenges such as recent high property prices across all sectors, although there has been a recent softening which can make it tricky for investors to find affordable commercial properties that make for sound financial investments. The recent softening has also perhaps been amplified with a limited supply of commercial office space coming to the market, whilst conversely on the residential side of things, there are more listings than agents have had for some time with the power sitting firmly with the buyers.
There is the continuous ever-changing landscape of the seismic risk posed to investors, coupled with the uncertainty of future changes in policy that could impact whether an investor retains and undertakes the strengthening works, or has no choice but to sell. Again, this is an area where any additional support from a regulatory perspective at a government level would be welcome. Including streamlining red tape and offering tax incentives, as well as support from a local council perspective through more than just rates rebates. Such measures would greatly assist investors across multiple commercial property sectors to continue to purchase and have a presence in Wellington.
On a macro level, improvements to local infrastructure are fundamental to ensure we have that continuous demand from investors to purchase & hold assets. This would allow businesses to invest and thrive for years to come.
Overall, in my view the city isn’t ‘dying’ as described by a previous leader of the country. By creating a business-friendly environment that supports growth and innovation, coupled with well thought out and developed infrastructure plans all lead to Wellington being an attractive place to invest long term.
Asset Manager – Commercial, Stride Property
Sumukh is the Wellington-based Asset Manager for Stride Property, managing its Wellington office assets that comprise that make the wider Fabric Office fund. Sumukh has a passion to see future growth in Wellington, by making it an attractive proposition both as a place to reside and for business to conduct their operations – ultimately people are the beating heart of any vibrant and successful city. He currently is a member of the Wellington Regional Committee for the Property Council New Zealand.