What’s it worth to you?

What’s it worth to you?

Total Property - Issue 4 2017

Specialists in commercial property valuation play an important role in the purchase and financing of investment property.

The valuation is an important step in every commercial real estate transactions. Valuation professionals provide advice on the current and projected value of real estate and real estate-related investments, and their work is used by investors, lenders and occupiers alike.

The increasing presence of large-scale corporate entities in the commercial and industrial property sector, combined with a tightening in the lending criteria by the retail banks for small to medium-sized borrowers, has underscored the importance of valuation services in New Zealand.

The most recent commercial and industrial property cycle boom – which tracks its resurgence back to 2013 – had seen many of New Zealand’s larger property-owning entities, including Precinct Properties, Goodman Property Trust, AMP and Augusta, all upping the size of their portfolios.

Their growth has been across the board in terms of sector, and very much concentrated in the “golden triangle” between Auckland, Hamilton and Tauranga. Those enlarged portfolios have subsequently demanded a greater degree of valuation services – whether for financial and shareholder reporting, insurance purposes or refinancing.

With several more years of construction work already in the building pipeline – particularly in Auckland – the need for valuation services at the very top end of the value chain is forecast to remain strong.

Concurrent with the increasing amount of New Zealand corporate-scale property ownership, valuation services are in demand from offshore markets – with South-East Asian and European markets buying more New Zealand property than ever before and seeking the appropriate relevant documentation.

The growth in demand for insurance valuations had also been driven by the consequences of last year’s Kaikoura earthquake. The physical impact of the quake on the Wellington commercial scene has also sent a degree of nervousness northward. While earthquakes are relatively rare in Auckland, global insurance underwriters now view New Zealand as ‘one location’ - seeing little geographic differentiation between Christchurch, Wellington and Auckland. Consequently, they are seeking updated valuations on hundreds of the bigger Auckland assets.

Meanwhile, across the entry-level to mid-range tiers of the commercial and industrial property markets, the retail banks are taking a more cautious approach to their funding allocations –seeking more professional valuation reports from potential borrowers. It’s a trend that first emerged over the second half of 2016, and has become more prevalent this year.

Ground lease rental reviews – particularly for the scores of businesses operating from leasehold premises around Auckland’s waterfront stretching from the Wynyard Quarter, through Britomart, and south to the Mahuhu precinct – are also another increasingly active sector.

With the first of those early ground leases now coming up for review, many tenants are seeking advice on whether there is value in their continued occupancy due to inflated total occupancy costs, and how their terms and per square metre rates comparatively fare against other similarly sized premises in adjacent locations.

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