Hamilton commercial in hot demand

4:55 PM Tuesday May 9, 2017 True Commercial

Vacancy rates in Hamilton are the lowest they have been in more than 10 years. Photo / Supplied

Right now demand for investment properties priced below $1m is hot in Hamilton; but even hotter for those below $500k says NAI Harcourts Hamilton managing director, Mike Neale.  

Neale says industrial and suburban retail properties appear to outperform all others, due to the limit in supply and future versatility.

“For those above $1m and especially over $2m, purchasers are increasingly discerning and carrying out thorough due diligence, with a view for quality tenants, long leases, structurally sound buildings, and hopefully future growth potential or upside.

Investors are looking to mitigate risk factors, so splitting the risk for larger assets is being viewed favourably. There has been steady inquiry throughout the Hamilton commercial market this year.

“With sales listings not always easy to secure, those genuine vendors that go to the market are benefiting from competition — proved by our last auction campaign selling nine out of 12 in March,” says Neale.

Neale believes banks tightening on lending is having an impact, predominantly in terms of development funding, but also for investors and businesses.

He says it is likely that yields for prime property will remain low, but with a possible softening in yields for other properties, as purchasers become more discerning due to an increasing number of properties coming to the market.

“We believe we saw the peak of the market in mid-late 2016, but in saying that there does not appear to be any risk factors which point towards to any significant decline — it now appears to be a more stable market going forward.  With interest rates having risen somewhat, it is inevitable that yields for non-prime assets will soften,” says Neale.

Vacancy rates in Hamilton are the lowest they have been in more than 10 years. Office space is at 7.2 per cent, retail space at 6.2 per cent and industrial space hitting a low of 2.3 per cent. Strong demand for industrial space, with well-priced and cost effective retail and office space also seeing steady demand. The suburban retail market continues to see increasing rental rates, as new builds become available due to Hamilton’s growth. It was recently reported that Hamilton will be New Zealand’s second largest city within 25 years.

With industrial vacancy rates at around 2 per cent there is a consistent shortage of property for sale or lease. Several new unit complexes are planned, with several others under construction currently. Several large tracts of industrial land are held by a limited number of players in the market.

There is continued confidence in Hamilton with ‘Ports of Auckland’ developing an inland port in North Te Rapa. Tainui Group are about to announce an operator for their new inland port facility in Ruakura which has just commenced site works.

The suburban retail market performs exceptionally well in any market and with continued limited supply, nothing is likely to change here according to Neale.

Neale believes the issue Hamilton faces with development land — whether residential, commercial, or industrial — is having the infrastructure in place. This remains a significant challenge for Hamilton City Council and in particular the funding required to achieve this.

The  CBD has  a significant number of new developments under way or having just been completed — Genesis Energy, Department of Corrections and ASB. These together with refurbishment projects are repositioning the office stock and creating  demand throughout the office sector.

The new Hamilton City Council District Plan has placed an emphasis on more residential development in and around the CBD. This allows for greater intensification and the conversion of more difficult to lease upper floor office space to apartments.

Neale believes it’s a good time to consider buying. “While we appear to have seen the peak in the market, strong immigration and tourism is likely to continue, which bodes well for Hamilton due to its proximity to Auckland and the Bay of Plenty. With house prices, half the value of similar properties in Auckland, commute times to work are significantly less and yields for purchasers are almost without exception higher.

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Mike Neale, NAI Harcourts.