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Changing commercial property market conditions lead to bolstering of valuations services

Tags: Commercial

The increasing presence of large-scale corporate entities in New Zealand’s commercial and industrial property sector, combined with a tightening in the lending criteria by the retail banks for small to medium-sized borrowers

The increasing presence of large-scale corporate entities in New Zealand’s commercial and industrial property sector, combined with a tightening in the lending criteria by the retail banks for small to medium-sized borrowers, has seen Bayleys Valuations Services appoint two new director’s to head up its services division.

Carl Waalkens and Nick Thacker have joined Bayleys Valuations Ltd with a directive to prepare the company for the multiple operational evolutions taking place in the sector. The pair were both previously in similar roles with JLL, with 18 years’ experience there.

Mr Waalkens said the most recent commercial and industrial property cycle boom – which tracks its resurgence back to 2013 – had seen many of New Zealand’s larger property-owning entities such as Precinct, Goodman Property Trust, AMP, PFI, several Maori Iwi, and Augusta all increasing the size of their portfolios.

“Their growth has been across the board in terms of sector, and very much concentrated in the ‘golden triangle’ between Auckland, Hamilton and Tauranga. Those enlarged portfolios have subsequently demanded a greater degree of valuation services – whether for financial and shareholder reporting, insurance purposes, or refinancing,” Mr Waalkens said.

“With several more years of construction work already in the building pipeline – particularly in Auckland – the need for valuation services at the very top end of the value chain is forecast to remain strong.

“Concurrent with the increasing amount of New Zealand corporate-scale property ownership, we have also seen additional valuation work coming from offshore – with particularly the South-East Asian and European markets buying more New Zealand property than ever before and seeking the appropriate relevant documentation.”

Mr Waalkens said that in addition to targeting the corporate sector, BVL would soon be restructuring its personnel into sector-specific teams to encompass property types such as childcare centres, education use premises, boutique CBD high street and suburban bulk retail locations, warehousing, heavy and light manufacturing, and multi-tenanted commercial. Bayleys Valuation Services currently employs 15 valuers – including a team in Wellington.

The growth in demand for insurance valuations had also been driven by the consequences of the Kaikoura earthquake at the end of last year, Mr Waalkens said.

“The physical impact that the earthquake had on the Wellington commercial scene has also sent a degree of nervousness northward,” he said. 

“While earthquakes are relatively rare in Auckland, global insurance underwriters now view New Zealand as ‘one location’ - with little geographic differentiation between Christchurch, Wellington and Auckland. Consequently, they are seeking updated valuations on hundreds of the bigger Auckland assets.”

Meanwhile, across the entry-level to mid-range tiers of the commercial and industrial property markets, Mr Thacker said the retail banks were taking a more cautious approach to their funding allocations – particularly seeking more professional valuation reports from potential borrowers.

“It’s a trend which first began emerging over the second half of 2016, and has definitely become more prevalent this year,” Mr Thacker said.

“The banks are actively directing potential borrowers to seek valuations from reputable valuation practices. With Bayleys Valuations already on the major banks’ recommended valuer panels, and with more work coming through as a result of the stringent lending application criteria, the workload justifies growing our personnel resourcing and breadth of capabilities to service this segment of the market.”

Mr Thacker said ground lease rental reviews – particularly for the scores of businesses operating from leasehold premises around Auckland’s waterfront stretching from the Wynyard Quarter, through Britomart, and south to the Mahuhu precinct – were also another increasingly active sector of the valuations spectrum of services.

“With the first of those early ground leases now coming up for review, many tenants are seeking advice on whether there is value in their continued occupancy due to inflated total occupancy costs, and how their terms and per square metre rates comparatively fare against other similarly sized premises in adjacent locations,” he said.

“The more that these tenancies come up for review, the more comparative market data valuers are accessing to get a broader picture of what is happening in the market. For example, due to the strong land value growth of the past four years we are seeing big variations in ground rentals between Mahuhu which is the most mature location, Britomart which has been largely developed since 2010, and Wynyard which is the veritable ‘new kid on the block’ with new buildings coming on stream now.”

Bayleys Valuation Limited is typical of the larger corporate tenancies moving into the Wynyard Quarter – having relocated its head office services into a purpose built office block on the corner of Gaunt and Halsey streets to house the wider Bayleys organisation. The leased building is owned by Goodman Property Trust.

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