Commercial property investment update: first half of 2019

CBRE: Active overseas buyers see long-term prospects in commercial property investment

 

Commercial property buyers have been very active in 2019, with some large projects typically attracting viewings from more than 100 potential buyers. Last year's overseas buyer ban, which prevents overseas buyers from purchasing residential property, has also redirected some funds into commercial property.

 

CBRE director James Lee said that in 2019, a large property would typically receive offers from more than a dozen prospective buyers, usually including 2–3 Asian buyers from Singapore, Hong Kong and mainland China. Despite tighter foreign exchange controls imposed by the Chinese government, Chinese buyers remain just as enthusiastic about New Zealand commercial property.

 

James Lee said: ‘Office purchases in Hong Kong currently offer yields of 1.5%–2%, compared with around 5% in New Zealand. Combined with the depreciation of the New Zealand dollar, this makes New Zealand commercial property very attractive to Asian buyers;

 

‘Meanwhile, expectations of renminbi depreciation have encouraged some Chinese buyers to invest in New Zealand property, with the opportunity to convert the proceeds back into renminbi in future making it a potentially profitable investment.’

 

There were relatively fewer large transactions in the first half of 2019 than in 2018. In 2018, some individual property transactions exceeded a hundred million dollars.

 

The largest transaction so far in 2019 is the property at 35 Graham St, which sold for NZ$58,000,000. A letter of intent has also been signed for the office building at 44 Taharoto Road in Takapuna. Notably, both properties' buyers are New Zealanders.

 

James Lee said private sellers of commercial property are more sensitive to price and do not mind whether the buyer is from overseas.

 

‘But if the owner is the government or a listed company, they usually care more about ensuring settlement goes smoothly. Sometimes, when offers are close, they prefer local buyers because of concerns that an overseas buyer's funds may not arrive without difficulty.’

 

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According to CBRE's data report, New Zealand's commercial property market is relatively small in terms of sales volume, with comparatively limited stock. Offices and industrial properties have sold well in 2019, particularly commercial properties with stable tenants.

 

Commercial property yields in New Zealand have been 5%–5.5% since the start of 2019, down from 5.5%–6% in 2018. Generally, a lower OCR gives buyers greater purchasing power, but commercial property yields also tend to fall somewhat.

 

 

According to a CBRE representative, commercial and residential property are correlated. Generally, when residential prices fall, commercial property prices follow 6–9 months later.

 

However, New Zealand's housing supply has not increased significantly, while demand remains. Against a backdrop of falling interest rates, residential prices will recover sooner or later, meaning commercial property prices will still rise over the long term.

 

Colliers International: Rising rents and steady returns fuel growing interest in office and industrial property investment

 

According to Colliers International's analysis of data for the first half of 2019, Auckland CBD office vacancy rates have reached their lowest level in 20 years. There are currently 63,000 square metres of office space under construction in Auckland's CBD, with another 8000 square metres being refurbished. These projects are expected to be completed in 2021.

 

Strong tenant demand and limited space have pushed up rents for premium offices. Colliers International forecasts that prime property rents will grow by 3% to 4% annually over the next two years, until more space comes onto the market.

 

As of February this year, 210 industrial property projects in Auckland had been approved for off-the-plan sales, the highest level since 2010. The overall industrial property vacancy rate also fell to a record low of 1.5%. Over the past year, Auckland industrial property rents have risen by 5%.

 

Colliers International forecasts that rents will rise by around 3% next year, with some properties potentially seeing increases of 4%–5%. Confidence among Auckland industrial property investors also remains strong.

 

Retail: Major commercial developments will bring in more international retail brands

 

Over the past year, the number of international retail brands signing up to enter the New Zealand market has increased, driven by leasing and relocations on Auckland's Queen Street and new developments such as Westfield Newmarket and Precinct Properties' Commercial Bay.

 

By the end of 2019, Westfield Newmarket will add more than 80,000 square metres to Auckland's total retail space. The development accounts for 48% of all space currently under construction in Auckland's main retail areas.

 

Alongside Farmers, Countdown, Event Cinemas and Noel Leeming, Westfield Newmarket is understood to be bringing a host of international retail brands to Auckland, including Australian department store David Jones, Aje, Lego and an Apple retail store, further driving the development of the retail sector.

 

 

 

Edited by Lin Zhu, Lilly Deng

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