Growth in regional economies is working its way through into commercial and industrial property markets.
Bayleys Research national manager Ian Liltte said this was reflected in an increase in the value of commercial and industrial sales outside of Auckland to $3.587 billion in 2015, up 47% on $2.441 billion worth of transactions in 2014. This came on the back of a 20% increase in transaction numbers as well.
“More properties are selling at higher values right across New Zealand and anecdotal evidence would suggest that momentum has continued on into 2016,” Little said in address to a Total Property Live Regional Property Expo held recently in Auckland by Bayleys Realty Group. “If anything, we would expect it to pick up further as many regional markets are at an earlier stage in the current upward property market cycle than Auckland is.
“Clearly there’s a lot more confidence in investment property markets up and down the country and it is also being mirrored in the development market with the fundamentals now right for a return to new commercial building activity.”
Little said the value of commercial consents was up 73% across the country in the 12 months to April 2016 compared with the year to April 2010 when new when new development activity was at an all-time low. While a 193% increase in Canterbury, as a result of the continuing post-earthquake rebuild in Christchurch, was a big contributor it was well exceeded by a 301% increase in the Bay of Plenty, reflecting a phenomenal increase in development in that province particularly around fast growing Tauranga/Mt Maunganui.
Other regions in which the value of commercial consents was up by around a third compared with 2010 were Waikato (34%), Hawkes Bay (36%), Wellington (32%), and Otago (36%). “As with the property investment market, many of these markets are at the early stages of their current commercial development cycle and can be expected to ramp up more.
“The increase in commercial construction activity is in response to vacancy rates moving down for the first time in a number of years, as our occupancy surveys around the country indicate. That is also igniting some rental growth as supply in those markets tightens up, although different regions are at different stages.”
Little says there has been a tremendous amount of yield compression in Auckland and that has spilled over into other regions as well as a result of strong competition for investment properties and a continuing lowering of interest rates.
“However, a strongly located and tenanted industrial property outside of Auckland is likely to sell for at least a one percentage point higher income yield than a similar property in Auckland. So if income yield is what you are looking for then there are plenty of good opportunities in the provinces to secure that.”
Despite the dairy downturn in many provincial regions around New Zealand, Little said this was being offset ti a certain extent by a strong performance by non-dairy agriculture sectors, with horticulture being the standout and viticulture also benefiting from record international sales of New Zealand wine. Also helping is a big infrastructure spend, led by the Roads of National Significance programme.
Also speaking at the Bayleys’ Regional Property Expo, Christina Leung, senior economist for the New Zealand Institute of Economic Research (NZIER), pointed to multiple factors producing “decent economic momentum” around the country.
She said chief propellers of broadening regional economic activity are strong population growth, fuelled by record net migration numbers, a substantial increase in construction activity and a big pickup in tourism.
Leung said while a slowdown in net migration is expected, the big build up in immigrants that has already occurred will have a continuing positive impact on the economy for a number of years to come.
She said this strong population growth has led not only to a ramping up of residential construction in Auckland but in the regions as well. Commercial development, which tends to lag residential construction activity, was also just starting to pick up in the regions, she said. It was most noticeable in new office building, reflecting increased growth in the service sector, and in guest accommodation to provide for growing numbers of tourists.
Leung said NZIER expects tourism to be a key driver of economic growth over the coming years injecting income into the regions, creating a lot of jobs and encouraging people to move to where those employment opportunities are. “This in turn will create further demand for housing and commercial premises which will fuel more construction activity.”
Here is a video summary of the event