20 years and bold frontiers
Total Property - Issue 6 2019
Reflecting on 20 years of Total Property and the commercial and industrial sector, Bayleys’ managing director Mike Bayley says the only constant is change.
“There’s been no room for complacency. Any investor or business that looked the global financial crisis straight in the eye, reviewed and tweaked their operational model and survived to tell the tale, is stronger for it,” he says.
Chris Bayley, senior director of commercial real estate, says the landscape today is more sophisticated – as are buyers. “Twenty years ago, we were the gatekeepers of property information but it’s all accessible online now so, as agents, our value lies in adding tangible value to the transaction for all parties.”
Other standout changes include the rise of Iwi investment; burgeoning mixed-use developments; growth in the retirement and medical sectors; dedicated industrial business parks; the emergence of shared spaces and destination retail precincts; and the “green” buildings drive.
Add in big changes in regulation plus new building standard and insurance parameters arising from major earthquakes – and the marketplace has been redefined.
Phil Bennett, BNZ’s head of property finance, says the economy grew by 4.5 percent in 1999 – a strong bounce back after the Asian financial crisis and drought in 1998.
While funding costs have fallen significantly, lending criteria and thresholds for commercial property investment have tightened.
Senior auctioneer Richard Valintine was with Bayleys in 1999 and believes the auction room remains the best place to determine a property’s value. “Bayleys pioneered portfolio auctions on behalf of banks and large corporates after the 1987 sharemarket crash and the high clearance rates helped establish new market values,” he says.
International sales director James Chan says buyers and vendors are increasingly diverse. “Now we have clients of all ethnicities – or their New Zealand representatives – active in the auction room, along with offshore vendors selling through us.
“We’re on the radar of active investors from Australia, London, New York and South East Asia.”
For renowned investor Sir Robert Jones, the past 20 years have validated his focus on prime CBD-located office buildings. Robt. Jones Holdings Limited is New Zealand's largest private office-building owner with over $2 billion of assets in Wellington, Auckland, Sydney and Glasgow.
With 75 percent of the world’s population expected to live in sizeable cities within 25 years, he reckons his strategy is still on the money. But he cautions against over-supply motivated by easy money, rash developers and ever-higher buildings – the defences being the age-old rules of location and quality.
Lloyd Budd, director of Bayleys’ Auckland commercial team, says CBD office stock remains a strong asset class despite challenges around seismic ratings and asbestos removal for older stock, and health and safety requirements.
“The expectations around quality and amenity have shifted and we’re seeing the very best in design, functionality and ‘green’ principles being incorporated.”
Open, fluid work environments and coworking are increasingly central to how office space functions.
Mark Hourigan, director of commercial and industrial in Wellington, says the growth of Trade Me, Xero and the film and university sectors has reshaped the market in the capital, as have changing public sector requirements.
“We’ve seen the conversion of numerous office towers into student accommodation, the centralisation and upgrading of property for government departments and record-low CBD vacancy rates.”
Chris Beasleigh, national director retail sales and leasing, says although retail has seen significant change driven by e-commerce, New Zealand property has generally been insulated from the global fallout.
“The retail footprint per person here is nowhere near that of the US and even Australia, so e-commerce has not – yet – had as big an impact.”
It’s a case of “big is best” with the rise of supermalls like Sylvia Park and Westfield where entertainment, recreation and food and beverage are crucial, while suburban malls are facing identity crises.
Paul Dixon, Bayleys director hotel and tourism sales and leasing, says this sector is undergoing unprecedented change.
“There’s a squeeze on hotel room availability in traditional hotspots, with Queenstown a year-round destination and the Christchurch accommodation market still rebounding from the 2011 earthquake,” says Dixon.
“In Auckland, there’s a flurry of hotel development leading some to speculate it could lead to an oversupply if visitor numbers flatten.”
Dixon believes hotel assets will remain tightly-held. “Demand for new-build hotels will be the key to growth and the inhibitors will be land and construction costs.”
Scott Campbell, Bayleys' national director industrial sales and leasing, says industrial is the top-performing sector.
“We’re seeing unprecedented demand from investors and owner-occupiers, vacancy rates are tight, rental growth is high and capitalisation rates are sharp,” says Campbell.
Growth in online shopping has underpinned demand for logistics space. “The industrial sector has become increasingly sophisticated with technology allowing for greater efficiencies.”
Master-planned industrial parks are flourishing and inland ports are streamlining operations. Last-mile delivery expectations, technology and tight land supply will continue to reshape the location and form of property.
Head of Bayleys syndication and investment products Mike Houlker says the syndicated investment market is another success story.
“Investors have the opportunity to invest in prime property that they would otherwise not be able to afford, for as little as $10,000,” he says.
His team has managed the sell-down of more than 60 syndications across Australasia with a total property value of over $1.6 billion.
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