Overseas investors dominate office investment market as office and industrial rents look set to rise

Overseas investment relatively active in office property

 

Data shows an overall increase in overseas investment transaction volumes in the office property sector.

 

In 2017 and 2018, premium Auckland office buildings worth more than US$50,000,000 attracted considerable attention, with overseas investors leading 85% of transactions, largely because of their international appeal.

 

Data source: Colliers International Research

 

In 2015 and 2016, joint investment activity changed considerably under the influence of global factors such as the US election and the Brexit referendum. The Asia-Pacific property sector remained relatively unaffected, laying the groundwork for overseas investors to seek opportunities in New Zealand.

 

Since then, New Zealand office properties have attracted investment from Blackstone, Roxy-Pacific, KKR, and Investec. Blackstone acquired the VXV 3 commercial option properties for NZ$635,000,000, at a yield of 6.6%.

 

This investment opened a global channel for overseas investment into New Zealand, bringing further major investment from overseas investors such as Invesco and PAG Asia.

 

Over the 5 years following 2014, investment in New Zealand commercial property exceeded several billion US dollars, creating new opportunities for property developers. We particularly look forward to this strong momentum bringing continued, more attractive investment opportunities to cities such as Auckland.

 

We are also seeing this momentum strengthen in other regions.

 

 

Offices: decline in consented floor area

 

As at March 2019, consented floor area for office-related buildings across New Zealand was approximately 178,000 square metres, well below the historical national average of 223,000 square metres.

 

The decline in consented office property floor area points to a downward trend in overall office development space.

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Space available for development in Auckland and Wellington remains at historical lows. Future supply is expected to increase slowly, providing some support for the office leasing market.

 

 

 

 

 

  

Consented office building floor area

 

Data source: Colliers International Research

 

Retail: consumer confidence steady

 

The New Zealand Retail Monitor’s quarterly survey for March shows respondents anticipate challenges ahead. 55% of retailers said they had missed their sales targets, up 11 percentage points from the previous quarter. More seriously, 36% of retailers expected to miss their targets in the next quarter.

 

However, the latest ANZ-Roy Morgan survey shows consumer confidence holding steady near its historical average, edging up one percentage point in April to an index reading of 123.

 

Correspondingly, the proportion of respondents who thought it was a good time to buy major assets rose eight percentage points to 46%. Consumer confidence in Canterbury increased by 5 percentage points. The South Island outperformed other areas, rising 10 percentage points to a confidence index reading of 125.

 

Industrial: supply and demand imbalance points to rising rents

 

Given the existing imbalance between supply and demand, industrial property rents across all Auckland areas are highly likely to rise over the next three to five years. Rents in established industrial areas of Auckland and Manukau cities are also expected to rise more than in other areas.

 

Historical analysis shows rental growth in Auckland and Manukau over the past five years exceeded that in other areas, typically reaching 25% or more. Even so, we expect industrial properties in Auckland and Manukau to remain highly sought after.

 

With Auckland’s worsening traffic congestion showing no sign of easing, longer journeys cause delays and increase delivery costs. These difficulties make tenants willing to accept higher rents.

 

Composite industrial net face rents: percentage change over five years

 

Data source: Colliers International Research

 

Commercial property rental changes in selected areas over the past twelve months, as at March 2019

 

 

Commercial property vacancy rates in selected areas

 

 

Source of the above data and analysis: Colliers International