The New Zealand commercial property market remains soft due to high interest rates, increased remote working and a continued rise in online shopping, reports the Reserve Bank of New Zealand – Te Pūtea Matua in a Financial Stability Report special topic released today.
Commercial properties – encompassing office, retail, and industrial spaces – are vital for economic activity. Historically, the performance of the commercial property sector has been sensitive to the economic cycle. The sector can amplify financial sector impacts in economic downturns.
“Weak tenant demand in parts of the commercial property market has led to higher vacancy rates and soft rental growth over the past couple of years. At the same time, high interest rates have strained owners’ cashflows and reduced property values,” Director of Financial Stability Assessment & Strategy Kerry Watt says.
“However, the financial system is well placed to manage the risks. Enhanced regulatory requirements and improvements in lending standards mean we have a system that is more resilient than in the past,” Mr Watt says.
While challenges in the commercial property sector are being managed, concerns could increase if economic conditions worsen. A downturn in the sector could impact construction and employment and increase loan defaults, putting additional pressure on banks.
“It is crucial for banks to stay vigilant and continue monitoring developments in the commercial property market,” Mr Watt says.
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