Report | Intelligent Investment

2023 Pacific Market Outlook

February 15, 2023

The images shows a close up low angle view of a commercial building that is under construction.

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2023 will see a reversion of history. We expect strong rent growth and weaker values compared to recent years of strong valuation and low income growth.

For Industrial and Residential, we see “rent-a-demic” as vacancy remains tight. Supply of new real estate product has been pushed back in 2022. There is scope for low supply to sustain a higher level of rents. We’ve also pulled back Office supply growth from 1.6% to 1.1% pa to 2028. We also estimate 2023 residential apartment construction is likely to be c45% below 2017 peak level.

Both Australia (+1.7%) and New Zealand (+1.0%) are likely to experience economic growth, albeit below trend. We see Australian interest rates near peak level and NZ could see another 1.25% of hikes. Stabilising rates should reduce price anxiety around transactions. We expect cap rate expansion of another 25bps-100bps in 2023.

We see opportunities in: a) inner city and CBD locations benefiting from returning citizens and visitors; b) development projects getting off the ground, where a harder stance can adopted on construction cost escalation; and c)

vacancy tightening in “premium” and “value” segments of Office and Retail. This will increase the attractiveness of these segments for investors.