Over the past fifteen months, rental property supply and demand across New Zealand has been erratic at best. In some parts of the country, demand for rental properties has dramatically increased with unprecedented numbers of people returning to New Zealand from overseas. We’ve also seen the requirement for emergency housing climb to new heights. While in other areas of the market, demand has dwindled from the sudden halt in international travel.
For most rental property owners, understanding the long-term impact on their investment has been a game of wait and see. One location that was hit particularly hard by the closure of New Zealand’s borders in 2020 was the Auckland CBD. We caught up with David Graham, principal of Quinovic Viaduct to discuss his observations of the Auckland rental market and the ongoing effects of the pandemic for Auckland property investors.
Auckland is New Zealand’s largest city with a population of more than 1.5 million people. With the media sharing stories of New Zealanders flocking back home in the wake of Covid and the immense demand for housing, one could expect the Auckland rental market to be faring the same, if not better, than other areas in the country. But David was quick to point out that Auckland’s position as the Gateway City for immigration, tourism and industry in New Zealand has been a cause for hardship, “We were always going to be the first to take a hit. Without the Government works, industry and support services Wellington has, or the continued rebuild Christchurch has, Auckland didn’t have anything to fall back onto.”
With the lack of immigration and tourism, the drop in the short-term market was almost immediate when the first lockdown in March 2020 commenced. The sudden absence of overseas students, along with the general decline of students in Auckland ever since, has seen One Bedroom inner city properties disproportionately affected, especially Studio apartments. This is a ripple-effect that David is still seeing the impact of today. Depending on quality, presentation and location, David has seen a massive drop of up to 25% in rental rates for Studios and One Bedrooms in Auckland CBD. While not hit quite as hard, rental rates for Two Bedroom properties in the Auckland CBD have also been damaged. Prior to the pandemic, David explained that there would typically be a steady stream of corporate companies bringing staff into Auckland City to undertake projects or relocate. With businesses suddenly unable to do so, the drop off in demand for Two Bedrooms has been 10-15%, again depending on the quality of presentation, furnishings and location.
This fall in corporate demand has also had a direct impact on the high end apartment market, usually renting for a median of $1500 weekly. With this sudden dropoff in demand and high costs to cover, it’s unsurprising that many owners of rental properties in the Auckland CBD have been looking to sell. David explained, “Prices are high for apartments and townhouses. For many investors, it has been the time to sell and repay debt,” decisions which David noted may have also been influenced by the increasing complexity of compliance with the rollout of the Healthy Homes Standards and the Residential Tenancies Amendment Act 2020. “Owners have felt like taking the money and looking at other options, so a lot of property has been sold, especially in the apartment market around the Auckland CBD.”
While selling is certainly understandable in the current economy, David shared his confidence in the Auckland market for property investors, “The rental market is cyclical and Auckland will come back. Give it another twelve-to-eighteen months and watch how it will bounce back.”
David sees borders opening, an increase in international vacations, and the nation talking about recovery and a future, as the first steps toward Auckland’s strong return. “Auckland is the engine of New Zealand and it will need to fire up to save the country.. For those interested in investing in One or Two Bedroom rental properties in the Auckland CBD, David’s advice is much the same as what he is telling existing owners - be patient. He explains, “Consider the market in the winter of 2021 or 2022. In the Auckland CBD, you are not competing with homeowners but other investors and they buy on the numbers. So if the numbers make sense, you get a good buy.” David also suggests keeping an eye out for old stock that have sorted their building issues and done the repair work, “Now is the time to refurbish and upgrade. Add style and quality and you will have sought after rental properties.”
Although the One and Two Bedroom market in the Auckland CBD is still on the backfoot, David has every confidence that the dial will shift. First, New Zealand needs to overcome the prevailing attitude of fear and hesitation to invest in business, tourism and future projects. With the vaccine rollout and the Trans-Tasman bubble in full force, we’ve already started to see viewpoints shifting. It’s important to remember that rental property is often a long-term investment and naturally comes with ebbs and flows. Watch this space.
If you currently own a rental property in the Auckland CBD or are considering investing and want professional property management advice, get in touch with your local Quinovic office. We’re a nationwide team of property management experts and have managed over 100,000 tenancies since 1988. No matter how big or small your question is, we’ll be happy to help.
