A record year

A record year

Total Property - Issue 7 2016

Analysis by John Church, Bayleys’ national director commercial

The continued onwards and upwards march of the New Zealand commercial and industrial property market this year has been well documented. It has been based on a powerful combination of factors.

A robust and increasingly diverse economy, no longer overly reliant on the performance of traditional agricultural sectors, has outperformed many of its sickly global counterparts. This has engendered strong confidence within the business community.

In conjunction with population and job growth, this has increased the demand for businesses premises and brought vacancy rates down. The consequential pressure on supply is resulting in rental increases, although with the exception of a few locational “hot spots” these have been fairly modest to date.

Sales values appear to be running well ahead of the previous record year of 2007. Revenue generated from Bayleys commercial and industrial sales and leasing transactions from April to September was up 32 percent on the same six months last year.

That growth has been consistent across all sectors of the market and across most of the country. Offshore investment interest remains high but for the most part overseas purchasers have been outgunned by local investors, particularly for high value investment stock.

The syndication sector has been a dominant force at this end of the market, with market leaders Augusta and Oyster both launching far bigger offerings than previously undertaken.

However, the demand for the product is certainly there and syndications are likely to remain in vogue while interest rates stay low, although investors may need to accept a further downward adjustment in their returns as cap rates continue to be squeezed by the big demand for high quality properties.

Despite the popularity of syndications, direct property investment remains the preferred method of purchase for most. This year’s auctions have reflected just how much market demand continues to outstrip supply, with huge bidding competition on many properties pushing yields to even lower levels and land and building prices to new highs in some strong locations.

All the above market drivers look set to continue well into 2017 so are there any dark clouds looming on what otherwise looks a very bright horizon?

We need to be aware of the fact that most other economies aren’t performing anywhere near as well as New Zealand’s and they continue to grapple with major structural issues. Our global outlook article points to some big potential risks which include rising bond yields, another financial crisis led by weakness in the banking sector and continuing long-term economic decline and rising unemployment.

It remains to be seen whether any of these play out and if so what impact they have on our market but history tells us we are far from immune from what is happening in other parts of the world.

An increase in uncertainty and volatility in global investment markets is also likely to see more property owners looking to cash in on the significant value increases over the last few years, presenting more opportunities for purchasers.

View the latest office, retail and industrial property sales throughout New Zealand featured in Bayleys latest Total Property magazine here.

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