Crystal Ball Gazing

We don’t often engage in crystal ball gazing. Or for that matter tea leaf reading, tarot cards or analyzing the crinkly lines on our hands.

But from time to time it is useful to look at the factors influencing our economy, and try to determine how those factors may shape our future.

What are those factors, and how are they likely to influence our actions in coming months?

Covid 19 has made a major impact on our world, and will continue to do so. But, realistically, and perhaps somewhat harshly, it’s actually not the end of the world. Life goes on for most – just somewhat differently.

Before Covid we had record low interest rates. These low interest rates will continue for some time. Low interest rates impact on Industrial property prices in that however low yields are, they are still better than bank interest rates. And low interest rates mean tenants buying their own premises can often be paying less in interest than they would in rent. We anticipate buoyant owner occupier interest, as well as steady investor interest.

Money printing is a new phenomenon in New Zealand. When Bruce Beetham and Social Credit advocated it in the 1960’s and 70’s they were laughed at. Perhaps rightly. But now it is tacitly accepted as necessary. It was extensively used as a tool post GFC by many countries. But intentions are often not translated into reality. What happened with a lot of that printed money was that it wasn’t spent, as intended, but ended up in bank accounts, and then often invested in assets. Which resulted in higher property prices. Now that we are seeing our central bank printing money, a portion of it ending up pushing up property prices may well be an unintended consequence.

A consequence of Covid 19 is likely to be structural adjustments in the way commerce works. The interruption to our supply chains illustrated the need for greater resilience in some areas. We forsee that this will result in both a back-pedalling of the Just-in-time philosophy with greater stocks being held on shore, and also an increased focus on manufacturing in New Zealand. Neither will be major structural changes, but rather minor changes to the way industrial space is required, and used, in the same way that there is increased need for fulfillment centres, and last mile delivery space, and lesser requirement for bricks and mortar retail.

Much has been written about the way in which working from home will decimate the need for office space. Most of what has been written can only be described as bollocks. There will be some employees for whom working from home is productive, and they will continue to do so. But contrary to this trend we believe that there will be a reversal of the trend of reduced floor space per employee ( hot desking, shared tables and the like) as physical distancing is seen to be more important. And ultimately there will be a realization that productivity is enhanced when workers have both the right tools in the right place, and access to the collegiality and information transfer that being in the same space as others brings. Long term what influences the reduction in office space the most is technology. For the present the major negatives for the office industry are going to be businesses, and in some cases whole sectors, closing their doors.