Uncertain future for commercial development

Tuesday 5 May 2020

Sixty percent of planned development projects worth several billion dollars are now uncertain due to the current economic climate, a new Property Council survey of its members suggests.

By The Landlord

Industrial and commercial property developers were most cautious, according to the survey.

They signalled that 70% of projects were now uncertain while residential developers indicated that around half of all projects were now uncertain.

That’s left commercial property developers warning that planned development projects are likely to be postponed or cancelled as market confidence declines.

Property Council chief executive Leonie Freeman says the survey results demonstrate developers’ natural reaction to uncertainty.

“We have very real concerns for the impact this may have on the construction industry and related sectors.

“There is great uncertainty in the market, ranging from the broad economic climate through to funding, future demand and many other factors.”

The Property Council also has growing concerns that property owners are being forced to bear the brunt of the COVID-19 cashflow crisis, putting stress on the feasibility of development projects.

Freeman says another issue causing pressure is around tenants’ inability to pay their rent as the loss of income will force landlords to reassess their planned maintenance and developments, causing projects to be postponed or cancelled.

“We saw a similar affect in Christchurch post-quakes, where the Government’s consistent delays to major anchor projects caused private developers to hold off on their investment in the city.”

“The last thing we need right now is for developers to pull out of projects that could have seen the construction sector and wider economy supported during the post-Covid recovery.”

Naylor Love chief executive, Rick Herd believes the Government should find the means to support and stimulate private sector construction.

He says the vertical and residential construction sectors make up over 80% of the entire construction industry and is about 80% funded by the private sector and property owners.

So without Government support, we will see a collapse of the vertical construction sector on a greater scale than occurred post the 1987 stock market crash, he says.

“That will mean the collapse of numerous business, particularly SMEs and job losses for in excess of 100 thousand people.”

The Government’s offer of $100,000 cheap loans to SMEs is short sighted, Herd adds.

“If these SMEs operate in the vertical construction sector they will probably collapse, meaning an enormous burden of bad debt to the taxpayer.

“Why not look to the longer-term and use this money to stimulate private sector building investment and construction for a long-term sustainable commercial property and construction industry, rather than short-term pain relief.

"We need to see some positive action in the next two or three weeks or month to see what actually [the Government is] going to do to stimulate that private sector investment."

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