Last month I told the Apartment Markets story through COVID. How values were not overstimulated like houses and the current property correction is turning apartments into an undervalued asset.

I pointed out the positives to make sure owners realize current levels are not market values and will in time come right. I drew parallels with 2010 when apartment values dropped to their lowest - also creating an undervalued market with a value rise that exceeded the housing market. They doubled in 5 years!

The big takeaway was the window of opportunity when values are at their lowest that I can't see being around for long.

Why? Look what’s coming in 2023

40,000 students are back (28th of February AUT and Auckland UNI)

The disappearance of 40,000 students from Campus in 2020 caused central rents to plummet and businesses to close. 40,000 people is a huge number for an area to lose. Come 27th and 28th of February the students will be back, looking for places to rent and spending money in our CBD. Game changer.

Plus, the 5-billion-dollar international student industry will be back with it too.

Tourism - NZ’s Largest industry is back from December 2022

COVID stopped 3.8 million tourists from coming to New Zealand who spend $16.2 billion dollars per year. These 3.8 million spenders mostly arrived via Auckland with a huge number staying in our CBD for a night or more. This was a huge loss to our CBD.

Most tourists come for our summer, and this is our first since 2020. So, get ready for thousands and thousands of tourists being back and injecting millions into our CBD. More money, more business, and more jobs mean higher central apartment values.

Office workers - First-year business (COVID) disruption will be zero. (End of Jan)

Finally, with confidence, the workplace can start the new year without any worry of interruption. This means back to the office. Manson’s and Precinct properties wouldn’t have just decided to build new offices costing 650 million and 1 billion respectively if workers weren’t coming back to our CBD in a big way. Yes, there will be flexibility to work from home for one or two days a week but with over 150,000 jobs in our CBD expect to see the streets full again and with it the desire to be close to or in our CBD. Oww, I am getting pumped just writing about this.

The BIG 4 of hotels and other hotel brands - in the last 5 years they have established themselves.

Hilton (Waldorf and a Double Tree), IHG (Crowne Plaza, Voco, and a Holiday Inn), Marriot (Sheraton, Four Points, and a Ritz-Carlton), Wyndham (Ramada and a Travelodge), and numerous other big hotel engines have added over 2000 rooms that weren’t here 5 years ago. These billion-dollar hotel companies don’t spend hundreds of millions without the ability to fill them. Hotel networks, reward systems, and packages… bring a lot of new people to our CBD and this arguably should mean tourist numbers in our CBD should be more than pre-COVID. I’m more worried about can our city handle the increase than if will it happen. So good.

Airbnb - (Throughout the year)

When COVID hit in 2020 over 1000 apartments left Airbnb and flooded the rental market adding to the fire and putting more downward pressure on values and rents.

Airbnb occupancy is already equal to pre-COVID levels and summer isn’t here yet and the big one, due to inflation, Airbnb daily rates are 40% higher than pre-COVID!

That’s 40% more income for apartment owners. This will raise the value of Airbnb-suitable apartments big time as well as increase the pull for owners to follow the money and pull their apartments out of the rental market.

Huh, what about all the new hotels I spoke about?

Most don’t realize new Hotels don’t mean less Airbnb demand…it means more as Airbnb is an alternative.

‘Hey, let's go to NZ and stay at the Park Hyatt…. hmm can we undercut the hotel cost by staying in Airbnb? ‘

2023 is the year apartments come off the rental market and go to Airbnb…. decreasing rental supply and increasing rents which will only push values one way.

200,000 new resident visas – issued to keep workers in NZ / (being processed)

200,000 more people who can buy property and with the visas being processed as we speak it is bringing more buyers into the market. With bank test rates high pushing buyers to the lower end, this is great for apartments.

We are already seeing these buyers, and this can only further add to the 2023 stimulus.

With this much stimulus coming how can we not be at the bottom? 

This is my point. After reading this I'm sure you will agree it looks good. So much so that I wouldn't blame you if you expected values to fully recover and possibly go up even more.

Honestly though, I can’t see a full recovery due to two big reasons.

Public sentiment. New Zealanders in mass don’t act on fundamentals alone. For a property market in New Zealand to have a large movement history tells us there must be positive public sentiment. We can all see with high inflation and interest rates the outlook in 2023 is very likely to be very negative. (I hope it changes but can’t see it.)

The 2nd is Finance. 8% to 9% bank lending test rates and high LVRs on apartments make purchasing very difficult. The combination of these restrictions being the hardest in over 20 years means most buyers can’t purchase no matter how good the opportunity. This is why the housing market is predicted by almost every expert to continue to fall.

This stimulus is still very positive though. Don't get me wrong. In the long term, it shows there will be gains like after 2010's bottom at some stage, and in the short term I simply can't see how values can go down further and so I expect values to recover some of the ground lost in 2020.

Hence my point - now till early 2023 is the window of opportunity for central Auckland Apartments.

Next Month

Students back, office workers increasing and Airbnb rates up 40%. What should or could your apartment be earning in 2023. Next month we will be looking at the financial health of your apartment.

And as always...