How Labour's policies could affect commercial property

New Zealand's oldest operating political party has begun its sixth term in government and much has already been said about how Labour's policies will affect property markets and businesses. Unfortunately, so much of the commentary has been either alarmist or overly positive.

Let's take a step back and consider where the most significant changes will be - from the IT industry in Dunedin through to forestry in the Far North. 
 

Dunedin's burgeoning IT industry

In 2012 the Dunedin Council developed a comprehensive economic development plan to boost growth, including a goal to grow the city as an IT and digital hub.

Just four years later and Dunedin's IT, digital and gaming sectors employ almost 2,000 people and generate $330 million in GDP, according to the New Zealand Technology Industry Association . What's more, in 2013 the city was named New Zealand's first gigatown and now boasts the southern hemisphere's fastest internet. 

Labour has pledged to support this growth, offering $10 million in funding over the next decade, with the aim of growing the digital and IT sector in Dunedin into a $1 billion industry by 2027. If this ambitious goal is reached Dunedin will fundamentally change. More startups and tech businesses will flock to the city, creating jobs and a demand for highly specialised, skilled workers. 

Data from realestate.co.nz shows that this growth may already be increasing demand for commercial offices, as space available for sale has decreased by almost 50 per cent from the same time last year. Opportunistic commercial investors should keep an eye on the region. If Labour's plans come to fruition growth in Dunedin office space could be one of New Zealand's most exciting commercial property trends in 2018 - with the potential for high rental yields, and long-term capital growth.
 

Regional development and the growth of the forestry sector

One of the most prominent features of the Labour-New Zealand First coalition deal  is the promised $1 billion Regional Development fund. This includes;
●    Significant investment in regional rail.
●    Planting 100 million trees per year for a decade.
●    Consideration of the feasibility of moving Auckland's ports to Northland.
●    Relocating government functions to the regions. 

These initiatives could be where the Labour government's effects on property markets are most keenly felt. For one, if Northport is found to be a viable alternative to the Auckland Port the entire area will be transformed.

Residential and commercial property around Marsden Point will rapidly increase in value as the new port drives huge increases in demand. According to realestate.co.nz data industrial property for sale in Northland goes for just $1009 per sqm on average, less than a quarter of the Auckland average.

Assuming Northport is as profitable as the Auckland ports, over $100 million could pour into the area every year revitalizing the economy, driving up property prices and increasing household incomes. 

Rapid rail transit is another interesting proposal which could spur considerable growth, particularly in Hamilton and Tauranga. Labour's policy details a three stage plan to analyse the business case and feasibility of connecting these three cities with a rapid regional rail transit system. This would support population and economic growth in both Hamilton and Tauranga going forward.
 

What does this mean for commercial property?

At this early stage the Labour-NZ First Government hasn't released the exact details of the allocation of their regional development fund. It's unclear which government functions will be relocated, and to where, and the relocation of Auckland's ports is also up in the air. 

However, what we do know is that wherever the investment goes, commercial property opportunities are likely to follow. Dunedin's tech investment, for example, may bolster the city's office market offering opportunities for commercial property investors willing to take them. Northport and the expansion of the forestry sector could do the same for industrial property in the affected areas.  

Keeping a close eye on the government's movements and acting quickly could be the key to snapping up a lucrative property opportunity in New Zealand's next regional growth area (while it's still affordable).