There’ s been another strong first half performance from the property sector this year, as Bayleys’ national director commercial real estate John Church outlines in a mid year review.
The commercial and industrial property market has continued to march along at a brisk pace in the first half of this year.
As the largest commercial agency in the country, Bayleys’ sales numbers provide a good barometer of how the market is performing. Volumes for the first six months of 2015 are tracking at a similar level to last year.
This stabilisation of the market is a positive thing, as another big jump in activity was unlikely to be sustainable. What are some of the key trends that have become apparent so far this year?
LOWER FOR LONGER
This time last year few commentators were predicting a fall in mortgage interest rates, or that already firm yields would be squeezed even further. Our last Total Property auction results suggest yields are still falling, with two retail properties – a well-located offering in Remuera, and a small dairy in a retail strip in Mt Albert – selling at sub-five percent yields.
Median Auckland industrial yields are now at their lowest point since Bayleys Research began tracking them in 1988. It would be a brave pundit who would bet against some further tightening of yields particularly if, as is now being widely predicted, the official cash rate is cut again.
The low interest rate environment continues to be the key factor stimulating commercial property activity. With rates likely to stay low – or go lower – for even longer, that big market driver is unlikely to change any time soon.
WELLINGTON BACK IN BUSINESS
The first half of this year has confirmed that the recovery in the Wellington market which occurred in the latter part of 2014, was no flash in the pan. Leasing and sales activity levels have continued to gather momentum this year on the back of what appears to be a sustainable recovery in the region’s economy, and increased business activity and investment.
Asian investors are once again showing interest in the capital city, while investors from other parts of New Zealand are also being attracted because yields have yet to undergo the sort of compression that is evident in Auckland and the market is at an earlier stage in the recovery cycle.
Investor confidence is reflected in the clearance rate in Bayleys’ Wellington auction rooms – where 11 out of 12 properties put up for sale this year have sold under the hammer. There has also been a noticeable increase in tender and private treaty sales between $2 - $5 million.
PICK UP IN THE PROVINCES
Some excellent results for provincial vendors have been achieved at recent Total Property auctions as investors cast their eyes further afield in search of good quality offerings.
In our first auction for the year, four retail units in a new convenience centre on the main road into Rotorua sold under the hammer to purchasers from Auckland, Hamilton and Matamata at yields of between 5.95 percent and 6.7 percent. At the same auction, a Wallace Development Company new building on the main street of Dargaville, with a nine-year lease to Rabobank, sold at a 6.6 percent yield to a Northland buyer.
This followed the sale at an identical yield of another new building, also built by Wallace Developments, in Wanganui and with a nine-year lease to the NZ Automobile Association. It attracted 14 bidders and eventually sold to a phone bidder from Christchurch for $970,000.
Just recently Bayleys’ New Plymouth office sold a substantial Carters building supplies outlet on the outskirts of the city for $6.25 million at a 7.7 percent yield. Not so long ago, a capitalisation rate well north of eight percent would have been expected for a provincial property of this size.
These sales are indicative of a large amount of capital nationally chasing a limited supply of good property.
Well-built, well-tenanted commercial property is a very saleable commodity in the current market.
WHERE TO FROM HERE?
With mortgage interest rates likely to go even lower, we are expecting sales activity to continue at current levels in the second half of the year. However, it is doubtful whether we will see the same number of ‘big ticket’ sales that were a feature of the latter part of last year. Not because of any lack of demand – there’s still plenty of that, particularly from offshore – but because the supply well has largely been drained.
For owners of properties who are looking to sell over the next six months, the very strong level of buyer demand will provide them with the best set of market conditions for a successful sale that we’ve had in a long time.
A number of owners are already making that move and we are delighted to be able to present another wide and varied selection of property offerings from around the country. We look forward to being of assistance to you.