Power to the provinces
Total Property - Issue 2 2016
THE LIGHTS ARE DEFINITELY STILL ON IN REGIONAL NEW ZEALAND DESPITE DAIRY’S DOLDRUMS.
Hardly a day goes by without some media reference to the dire state of our dairy industry and the impact that this is having on our national economy.
Given the woeful payout that farmers in our biggest agricultural industry are receiving for their milk this season, you could be forgiven for thinking provincial New Zealand is stuffed. The conundrum is that the numbers are telling a very different story. Let’s start with the commercial real estate sector. While Auckland still accounts for by far and away the biggest volume and value of commercial and industrial property transactions, it is provincial areas such as the Bay of Plenty that have provided the largest percentage growth in our business over the past year – and are forecast to do so again in our current financial year. Some of this is due to the “flight from Auckland” factor, with Auckland-based investors looking outside their home market for more affordable opportunities offering better yields. But it has to be more than that – savvy investors do their homework and generally steer clear of areas perceived to have poor growth prospects no matter how attractive the income yields may be.
So what is the bigger picture economic data telling us? The most comprehensive and interesting information on provincial activity is provided by the ANZ’s quarterly regional trends economic overview. Its latest report highlights that for the first time in two years, all regions either held steady or had positive growth in the December 2015 quarter. Quarterly growth rates for a number of provinces hit multi-year highs, led by Taranaki (3.8%), the Bay of Plenty (3.2%), Nelson-Marlborough (3.1%) and Wellington (2.8%). Auckland and Waikato were in the middle of the pack at 1.6%. For the 2015 calendar year, it was Gisborne – not Auckland – that took out the top spot with 5% annual average growth, a 13-year high for the province. Growth in four other North Island regions was above the national average: Bay of Plenty (4.8%), Northland (4.3%), Auckland (4.2%), and Hawke’s Bay (3.3%). Business confidence improved in all 14 regions measured by the ANZ’s economics team in the latest quarter, following falls in the third quarter, while consumer confidence was up in 13 regions. So without minimising the hardship that many dairy farmers are experiencing at present, it is clear that provincial New Zealand is not just all about the milk. We appear to have developed much more diverse regional economies. Other agricultural sectors such as beef, horticulture (particularly kiwifruit and apples) and viticulture are currently performing well, helped by a drop in the NZ$-US$ exchange rate by close to 15% over the past 12 months.
Record tourism and net migration numbers are benefiting provincial New Zealand as well. While migration tends to be predominantly an Auckland story, it is estimated that around half of new migrants settle in other parts of the country, so they are also adding some impetus to regional economies. All these factors are having a positive impact on most provincial commercial property markets and are resulting in some excellent outcomes for our regional vendors. A case in point was the successful auctioning of a Burger King outlet in Blenheim in March which sold after very strong bidding for $2,700,000 at a 6.5% yield. The five-year-old property, strongly located on a high profile corner site on Main Street (State Highway 1) with just under seven years to run on its initial 12-year lease, generated enquiry from all around the country as well as offshore. There were three phone bidders on the property, two from the North Island and the other an expatriate in Singapore, although it eventually sold to a bidder on the floor from Nelson. It sold for more than the vendor’s and agents’ capitalisation rate expectations of around 7% but still at a significantly higher yield and more affordable price than two Newmarket retail offerings which sold at a Bayleys Auckland auction in March. One a strata titled shop on the Broadway retail strip, leased to Cotton On, which sold for $3,050,000 at a 5.2% yield and the other a fully leased two-level building on a comer site adjacent to the 277 shopping mall which went for $6,125,000 at a 3.6% yield, although this property did have future development potential. Also of note with the Blenheim property was the fact that only five inspections were undertaken, including two on the morning of the auction from Cantabrians who had come up for the auction. This indicates a greater willingness these days to bid sight unseen on modern, seismically sound buildings which are built to a standardised specification and which have a strong lease to a national tenant. This trend is also working to the advantage of provincial property markets.
Increasing investor interest in provincial offerings has prompted Bayleys to undertake a property expo in Auckland showcasing regional commercial and industrial listings in early June, timed to coincide with the release of our next Total Property. While we have held these types of expos before for residential property, this is a first for the commercial market and is part of our focus on strengthening our national offering to vendors in all parts of the country. In the meantime, we hope this current offering of Total Property is of interest and look forward to being of assistance to you.
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