Queenstown is booming. A surging tourism sector drawing in more workers, coupled with an increasing wave of lifestylers and rising investor demand has led to the tightest residential market conditions many can remember. Strong population growth has seen demand for both rental accommodation and housing lift sharply, triggering a number of sizeable new residential projects, the largest being the soon to be released Hanley’s Farm. Recent unprecedented buyer demand has resulted in a strong run up in median house prices, up 30% to $800,000 over the past 12 months to March 2016, second only to Auckland at $820,000.
Queenstown recorded the country’s strongest population growth over the past 12 months at 4.9%, with an estimated resident population now totalling 32,400. Much of the increase has been as a result of people moving into the area, both from within New Zealand and off-shore.
Queenstown’s tourism indicators have also shown remarkable growth. According to Queenstown Airport, the number of arriving international and domestic passengers increased by 22.7% and 15.6% respectively compared to the previous year, reaching a new record of 793,955 arrivals over the last twelve months to April 2016. Both international and domestic tourism spending, as measured by electronic card transactions, was also up a solid 16% and 9%.
The above factors have resulted in very tight residential market conditions. Sales volumes were up 16% over the last 12 months to May 2016 while “average days on market” fell to a new low of 54 days compared to 65 days a year earlier. Inventory levels have fallen sharply with just 556 properties available for sale in May, around half that available in the same month last year, and well below the historic average of 1,687. The number of weeks to sell this inventory (based on current sales activity) is at an historically low 15.3 weeks, down from 34.8 weeks in the previous year and well below the longer term average of 81 weeks.
Unprecedented buyer demand has seen house prices surge. Based on the latest figures released by the Real Estate Institute of New Zealand (REINZ), Queenstown’s median house price is up 30% to $800,000 in the first quarter of 2016, compared to $620,000 for the same period the previous year. The upper end of the market has been particularly active over the past few months, pointing to cashed up Aucklanders and other lifestylers playing a more active role in the market.
On the supply side Queenstown-Lakes District residential new building consents in the last 12 months to April 2016 were up 40% to 894 from the previous year, however this is not being fully reflected on the ground in terms of construction activity. Queenstown has a unique set of challenges, these include a lack of appropriately priced accommodation for tradesmen, high construction costs, limited infrastructure and a tight concentration of land ownership which all slow the supply response. As a result the current tight conditions are likely to prevail for sometime longer.
The first stage of one of the largest projects, Hanleys Farm, is to be released shortly. The development is across the road from the successful Jacks Point development, and will provide a proportion of affordable housing targeted to first home buyers. The first release will include 100 sections and is planned to go on sale in June 2016 with agency reports confirming strong interest. Lot sizes are expected to range between 450m2 and 750m2 and the project is expected to include a Reserve Park, waterway and walking tracks as well as possible childcare and fitness centre. On completion Hanley’s Farm is expected to have around 1,700 dwellings and provide access from a new road off Kingston highway. Construction of the new two-lane Kawarau Falls Bridge on State Highway 6 which is expected to be completed in the second half of 2017 will significantly improve Hanley Downs’ connection to the city centre, reducing travelling distances to nearby retail centres and the airport. Other new residential subdivisions of scale in Queenstown include Shotover Country and Bridesdale. Apartments and terraced housing are also planned for the Queenstown Central Precinct. The current residential pipeline is expected to be quickly absorbed based on the expected growth in Queenstown’s population base.
Queenstown’s growing resident population and visitor numbers, coupled with further growth potential has given confidence to national retailers to invest and gain representation in Queenstown, resulting in a sizeable number of retail developments emerging over recent years. As the expansion of the Central Business District (CBD) is limited due to physical constraints and planning regulations, new retail growth is mainly taking place in the Frankton area which is approximately 7 km from the CBD.
Older and established retail centres in Frankton such as Remarkables Park Town Centre and The Landing are now complemented by the recently completed Five Mile Stage 1 and Mitre 10 Mega in Shotover Park. In addition, there are ongoing major retail projects in Frankton that are either in the construction or planning stage such as the Five Mile Stage 2, Queenstown Central Precinct and the PAK’nSAVE in Shotover Park. Despite the rapid increase in retail space supply over recent years, strong demand for new retail space continues, as well as any vacant space within existing centres. Much of the retail development currently underway and planned is driven by the growth potential of tourism and visitor spending, as well as catering for local Queenstown residents and those in nearby centres such as Cromwell and Wanaka.
The retail market in the CBD remains very tight with almost zero vacancy, resulting in further upward pressure on rental levels, especially for prime space.
Tourism’s attractive growth prospects are leading to a more diverse mix of retailers in the region which is also providing local residents with a broader range of retail choice and drawing newer residents to the area. Remarkables Park Town Centre management recently announced that Harvey Norman is coming to Queenstown to join the existing major national and international retail chains already there, such as Countdown, Briscoes, Rebel Sport, The Warehouse and Noel Leeming. At the upper end of the retail market Louis Vuitton will soon open its first store in the Queenstown CBD on the corner of Marine Parade and Church Street.
The recent introduction of night flights and the planned expansion of the Queenstown Airport runway will increase capacity and result in larger numbers of visitors to the region. Therefore increasing tourist accommodation capacity will also be critical to the area. Queenstown’s first new hotel in 5 years, the Ramada Hotel at Remarkables Park will go some way in achieving this as will a second hotel proposal by the same Wyndham Hotel Group which was recently announced (also within Remarkables Park).
Most office space in Queenstowns CBD is located above retail shops. Underlying market conditions suggest further upward pressure on office rents over the next 6-12 months as continued growth in business formations/expansions adds to demand pressures. Currently there is little new office supply in the CBD. A lack of parking is also exacerbating the situation. This is creating opportunities for new office space development in some of the out-of-town projects for occupiers who do not need a CBD address.
Historically the industrial heart of Queenstown was the Glenda Drive Industrial Estate in Frankton which has largely reached capacity. Further capacity is now emerging in the adjacent new Shotover Park business and industrial precinct. Agency feedback indicates a sharp increase in land prices in Shotover Park over recent years due to the shortage of industrial zoned land and growing demand pressures. In addition, the construction of new road infrastructure which will improve accessibility to the area and provide a direct link to the Remarkables Park precinct, is another factor adding to buyer demand. Strong interest from both owner-occupiers and investors for good quality industrial space is underpinning the growth in values.
Expansion of Town Centre
The recent rezoning success of Queenstown Lakes District Council (through the Environmental Court) to rezone 14.5ha land in the heart of Queenstown centre from residential to town centre zoning. A town centre zoning allows land to be used for houses, hotels, office, bars, restaurants and shops (excluding big box retail).
The ruling has the potential to kick start development of higher density residential, visitor accommodation, convention facilities as well as smaller scale retail and commercial uses. Height limits in the new plan range from 4.5 metres to 26 metres, allowing construction of a 7 storey building, although the vast majority of the land has a maximum height limit of around 12 metres. The rezoning could prove a “game-changer” for increased higher density development within the CBD. The Environmental Courts decision comes with an appeals period, however it is unlikely to be challenged given all parties who initially appealed the decision subsequently signed off on the consent order.