Affordability 'should not be barrier to rent growth'

New research from CBRE shows that, even as market rents have climbed, rent remains a manageable expense for New Zealand’s office and industrial occupiers.

The latest analysis finds property costs account for a small fraction of business outgoings, with most industries maintaining healthy margins and room for further rental growth.

CBRE’s study, led by Head of Research Zoltan Moricz, draws on a combination of Statistics NZ’s Annual Enterprise Survey, national accounts input-output tables, and company-level data to provide a comprehensive view of occupancy costs across the commercial property landscape.

The research focuses on how market rents have changed relative to company revenues and costs, and what this means for rental affordability.

The baseline findings show that property expenses average just 3.5% of total costs for office-based industries and 2.3% for industrial sectors.

Accounting and legal firms top the office sector, with occupancy cost ratios of 3.9% and 3.8% respectively, while logistics leads the industrial sector at 4.7%, compared to just 1.2% for manufacturing.

These averages, however, mask significant variation at both the sub-industry and individual company level.

By benchmarking rent growth against company revenues and profits, CBRE’s research confirms that rental affordability should not be a barrier for occupiers, even in the sectors which have experienced steep rent increases.

It cites industrial, which has seen a 67% increase in market rents in the past 10 years.

Over the same period, the pre tax surplus produced by the main industrial property based industries increased by 83%.

Office-based industries have seen revenue and profit growth that indicates there is room for further rental uplift with a pretax surplus growth of 86% in the past 10 years compared to market rent growth of 24%.

The research also highlights that rents are small component of a company’s overall expenses, meaning that rising costs elsewhere will impact profitability more than rent increases alone.

CBRE’s analysis suggests that, although subject to short-term cyclical fluctuations, with the past couple of years being more challenging for affordability, over the longer term, affordability has not been a barrier to growth in commercial real estate market rents.

“While affordability supports rent growth, it is only one part of the equation,” says Zoltan Moricz, CBRE New Zealand’s Head of Research.

“Supply-demand dynamics, vacancy rates, development costs, and the expertise of asset owners and managers are equally critical. The quality and quantity of space, and the productivity gains provided by modern premises, all shape affordability.”

CBRE’s analysis also points to the growing importance of high-quality, flexible space.

As businesses seek to optimise their operations and attract talent, the demand for modern, efficient premises is rising.

This trend is driving a flight to quality, with occupiers increasingly willing to pay a premium for space that supports productivity and wellbeing.

For landlords and investors, the research provides reassurance that underlying economic fundamentals are supportive.

Building owner and manager skills, alongside supply-demand dynamics, will remain the key drivers in New Zealand’s commercial property sector.

“As the market evolves, understanding the true drivers of occupancy costs is essential for making informed decisions,” adds Moricz.

- Supplied by CBRE