More sales this year to more foreign buyers

11:08 AM Saturday September 6, 2014 Colin Taylor

Chris Dibble, national research manager for Colliers International.

In the first half of this year just over $2.5 billion worth of commercial property is expected to have transacted in New Zealand at an individual sale price above $2 million, says Chris Dibble, national research manager for Colliers International.

“This far surpasses the first half of 2013 when there was an aggregate $1.5 billion of sales,” Dibble says.

Writing in the agency’s latest New Zealand Portfolio magazine, he says 2014 looks like being one of the strongest years in investment activity since Colliers’ records began in 1988 and just below 2007 when there was $3.9 billion in sales.

An average individual sale price above $2 million for the first six months of 2014 will also be one of the strongest Colliers has recorded.

Dibble says that in first half of 2014, subject to Overseas Investment Office (OIO) approval, there is likely be about $1.7 billion of commercial property sales above an average of $20 million for each property sold.

Major Auckland transactions have included the sale of the Lumley Centre, Chorus House, AECOM House and Building C in the Telecom Centre.

Offshore buyers are more involved in the market. New Zealanders have typically made up around 90 per cent of all commercial real estate buyers in a calendar year but 2014 will be influenced by a number of large offshore transactions. “By way of example, of the $2.5 billion of properties transacting at over $2 million so far in 2014, over half of the transactions are to offshore interests, subject to OIO approval. With approximately $5.5 billion in sales forecast for the 2014 calendar year across all price levels, we expect approximately one third of all commercial property transactions in New Zealand to be to offshore interests in 2014.”

Dibble says the sale of properties above $2 million continues to receive the lion’s share of attention but the investment market under $2 million has ranged between $1.7 billion and $2.2 billion per annum since 2008, with an all-time peak in 2006 at $3.3 billion.

“New Zealand’s commercial real estate sector is entering the next phase in the cycle,” he says. “Across many sectors and locations, demand is outpacing supply, creating a rise in rents that enables investors to capture higher prices than they have been able to receive in recent years. The weight of capital and the global hunt for return on investment is tensioning buyers and enticing sellers to explore their options, both in on and off-market campaigns.”

However Dibble doesn’t believe an increase in sales volumes is an indication that the market has reached its peak. “Many of the purchases announced have been as a result of investors repositioning their portfolio, recycling funds into other opportunities and investors encouraged by New Zealand’s growth in economic conditions, which is at odds with most in the OECD. Many offshore investors are attracted to New Zealand commercial real estate due to the defensive and positive investment characteristics which often includes higher-yielding returns than their home market, a transparent regulatory environment, a benign tax system, globally-recognised and easy investment processes; a growth in the depth of the market and the ability to on-sell properties of a large value quantum.”

Outside of Auckland other commercial property ‘hot spots’ identified in a Colliers’ investor confidence survey were Christchurch, Queenstown and Mt Maunganui/Tauranga. “Wellington’s investor confidence in the office sector, which is lower than other areas, was the highest recorded since the survey began in 2008.”

Dibble says the most transacted asset class by value under $2 million was in the industrial sector which accounted for between 40 and 50 per cent of all annual sales transactions. In the above $2 million bracket, the office and industrial sector typically recorded similar levels of transactions by value. However, the high value of office buildings sold in 2014 is expected to change this trend over the short term.

Dibble says 2014 is likely to be a bumper year in aggregate sales values across the price spectrum but it is unlikely to reach 2005 and 2007 levels and will just fall short of 2012. “We also forecast that the aggregate value of commercial sales activity in 2015 is unlikely to be higher than in 2014.”

He predicts that a higher interest rate environment will lead to cautiousness at the lower end of the market and slower uptake from the owner-occupier investment sector. “However, there will continue to be fierce competition for prime assets that will push investment yields lower over the next 12 months, especially in the below $2 million bracket.”