World of demand
Total Property - Issue 7 2018
Of the $12 billion of major commercial and industrial property sales in New Zealand over the past four years, half went to purchasers from overseas.
In the first half of this year more than $1.3 billion of overseas investment in commercial property was already in the pipeline – exceeding the total sales value of each of the previous three years.
Ryan Johnson, Bayleys national director commercial and industrial, says new investment capital is coming into the country by the week.
“Pension and sovereign wealth funds are deploying capital outside their countries, and nations such as Australia, New Zealand and Singapore – where there is leasehold and freehold land, stable government, English is spoken, and yields are good – are appealing,” says Johnson.
The country’s attractiveness to offshore buyers has increased rapidly, driven by core yields in industrial and office property of about 5.5-6 percent, a lack of stamp duty and capital gains tax, and recent falls in the kiwi dollar.
This has helped drive a number of major transactions.
North American fund Blackstone bought Goodman’s and Singapore government wealth fund GIC’s joint venture-owned VXV office portfolio in Auckland’s Wynyard Quarter for $635 million. US-based Invesco bought a 50 percent interest in the ANZ Centre on Albert Street for $181 million, plus a 24-level office tower at 125 Queen Street for $214 million.
Other notable purchases in the past two years have included Wellington’s 29-storey Majestic Centre, bought by South Africa’s Investec for $123 million; and the $49 million purchase of the PWC Centre in Christchurch by Grand Central of Singapore.
A Bayleys Research report analysing $20 million-plus sales from 2014 onwards shows that Singapore, Canada, the US, Hong Kong/China and Australia account for 89 percent of all offshore buying.
Cross-border capital flows for investment in real estate have accelerated in the past decade and Asia Pacific is now a leader.
The Active Capital Report, published by Bayleys’ strategic partner, global property consultancy Knight Frank, shows the number of ultra-wealthy individuals globally with net assets of more than US$50 million (NZ$74m) rose by 10 percent last year, and is set to rise by another 40 percent in the next five years.
This will boost demand for real estate investments, both through direct asset purchases and indirectly via deposits in pension funds, insurance vehicles and savings products.
Many of the most prolific investors – sovereign wealth funds or Asian capital exporters – were in their infancy 10 years ago, the report says. Now capital is being consolidated into larger and larger funds. The average capital raised in these funds has nearly doubled, from $551 million in 2016 to over $1 billion by this year.
Johnson says the hottest sector for international investment is industrial, because of e-commerce.
Amazon has shown the way with hubs and spokes logistics and retailing across the US, and now in Australia. It has an office presence in Auckland and Johnson believes it won’t be long before it sets up operations in New Zealand.
Other real estate investment classes are also on the radar of global investors, particularly in health and aged care, early childhood centres and student accommodation.
There are numerous advantages to be gained by vendors of New Zealand property from marketing offshore. The sheer weight of international capital looking for quality commercial real estate creates the maximum competitive tension, helping vendors achieve the best price, says Johnson.
Some funds need to get established in the market and will pay what they have to pay, relative to lower returns in these markets further along the growth cycle. New Zealand is also benefitting from the highest number ever of ultra-wealthy people investing $50-100 million.
Following the VXV transaction, Goodman NZ chief executive John Dakin spoke of the benefits of securing an offshore investor with capital of the scale needed to buy the portfolio. He described it as a defining transaction for his business which helped fund a major development programme and deleveraged the company’s balance sheet.
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