A leading property developer says a downturn in Rotorua commercial development is the worst he has seen in decades.

Ray Cook said he had worked in the construction industry for five decades and in
property development for about 30 years.

He said he believed the lack of activity in the non-residential sector threatened to stall the city as the impact flowed down to subcontractors, merchants and suppliers.

“I’ve never seen it so quiet. It is [concerning] but there’s not a lot you can do about it,” he said.

Cook said his company did not do residential builds and investment in new commercial or industrial development had become harder to “stand up” due to increased building costs, interest rates, and insurance.

“Insurance premiums have gone up for commercial industrial properties by 40-plus per cent over a 12-month period,” he said.

“It’s these sorts of things that are going to stall the city.”

Cook said people would have to cut costs somewhere and it was going to be a “testing time” for the building and property industry.

“It’s going to be very difficult because all of these growing costs aren’t making it attractive for anyone. It’s not just Rotorua. It’s nationwide.”

According to the interest.co.nz Commercial Building Consent Analysis for the fourth quarter of 2023, there were 46 consents issued nationally for new office buildings. The website reported this was a 32-year low.

Consents for warehouses and retail builds had also declined.

Residential boom

The downturn in commercial builds comes as Rotorua experiences a record number of residential building consents, linked to a surge in Kāinga Ora projects.

These projects were not expected to be affected by a report this week into Kāinga Ora’s financial status.

In April, the Daily Post reported “significant interest and investment in residential development in Rotorua”.

Consents handled by the council had increased from fewer than 400 in 2020 to 800 last year.

Kāinga Ora developments include a social housing complex on the corner of Malfroy Rd and Ranolf St, and apartments on Victoria St.

Data provided by Stats NZ showed there were four new commercial building consents issued in 2023 in Rotorua. There were 11 in 2022, and six in 2021.

Commercial builds ‘not stacking up’

Property developer Tony Bradley said it was fortunate Rotorua’s residential construction sector was holding up due to Kāinga Ora development. The rest of the sector was struggling, he said.

“Commercial is not stacking up at the moment.”

The lack of activity in the wider Bay of Plenty meant some tradies were travelling to Rotorua to try to find work, including with the Kāinga Ora-funded housing projects.

Builders, who would not be identified, told the Daily Post they were taking on smaller jobs they would not have bothered with six months ago. This was because they had to take what they could.

Todd Grey of Tauranga-based Todd Grey Builders said his team did not travel out of town but had noticed the effects of the slowdown.

“Now we are finding we are having to go into tender whereas before it was done and dusted, by word of mouth.”

Neverending boom or bust

Master Builders chief executive Ankit Sharma previously said it was working hard to avoid a repeat of the Global Financial Crisis when “we lost many of the skilled participants from the sector”.

Sharma said the building and construction sector had experienced an endless boom and bust cycle.

“While this cycle is experienced across the wider economy, the peaks and troughs are far more extreme for the building and construction,” Sharma said.

Last month, Housing Minister Chris Bishop said, on behalf of himself and Building and Construction Minister Chris Penk, that the construction slowdown across the rest of New Zealand was driven by high interest rates during a cost-of-living crisis.

A breakdown of rates across all banks showed floating home deposit rates were higher than average.

Penk then announced plans to reform the building consent process to cut red tape and build more housing and infrastructure.

In a March speech, Penk also signalled this reform: “The bottom line is that it takes too long and is too expensive to build anything in New Zealand”.

Bishop said the coalition Government was focused on lowering inflation “and getting the economy back on track which is the most important thing we can do to turn this around”.

Last month, Prime Minister Christopher Luxon announced changes to building supply regulations to address shortages.

Luxon said eliminating border barriers for overseas building products would help with “cutting the red tape”.

Kiri Gillespie is an assistant news director and a senior journalist for the Bay of Plenty Times and Rotorua Daily Post, specialising in local politics and city issues. She was a finalist for the Voyager Media Awards Regional Journalist of the Year in 2021.