New Zealand property investors remain confident

New Zealand property investors remain confident

April 15 2014 – Investors are very confident about the future prospects of commercial property investment in New Zealand, delivering another quarter of enthusiastic responses. Confidence is at a net positive 28%, just shy of the record high set at the end of 2013, according to the latest Colliers nternational investor confidence survey.

Auckland commercial property continued to exhibit the highest levels of confidence out of the 11 regions surveyed, with a net positive 58%, followed closely by Queenstown at a net positive 56%. Confidence in Auckland is propelled by forecasts of higher economic activity, while Queenstown is benefiting from population and tourism growth, says Chris Dibble, national research manager for Colliers International.

“Economic activity in New Zealand is expected to grow between 3% and 4% per annum over the next few years, at the top end of all OECD countries,” Dibble says. “Population is up and migration is robust, with outward flows to Australia diminishing. Business profitability is rising, reflecting business and consumer confidence which keeps on hitting record highs.”

“Businesses are signaling growth in employment. More employees mean more space absorption, driving new leases for expansion and the development of new premises. Tenant confidence is stirring investor enthusiasm and investment activity. Owners and landlords are locking in rental rises and further yield compression is occurring as competition increases amongst investors.

“The rises in interest rates over the next year may curb some enthusiasm, but much of the impact has already been considered by purchasers and financiers. There is a sizeable amount of capital in the market searching for a home, and real estate continues to provide a popular choice for many,” says Dibble.

Outside the main centres, investor confidence is higher in regions with positive underlying fundamentals such as population growth and better employment opportunities.

Wellington investor confidence reaches a new high of net positive 10%, up substantially from a year ago.

The renewed confidence is due to a greater understanding of seismic building requirements and a more positive outlook on the market drivers, according to Jim Pinson, executive director of Colliers Wellington agency office.

“Vacancy in the A grade office property market sits just below 5%, a shortage that has persisted now for some years due to several factors,” Pinson says. “Corporate tenants are seeing some growth but finding that large parcels of quality space are scarce. ‘Quality’ intrinsically means ‘safety’ since the shakes of 2013. Some building owners have gone to great expense by way of strengthening works to retain tenants; while those who haven’t are finding their buildings are emptying out.

“Another factor in the shortage is the Crown’s search for large blocks of space for various departments and Ministries, which has soaked up much of the recently refurbished mid-quality office space.

“As investors gain confidence we are seeing renewed development activity, which will help fill the void in new A grade office space. There are a handful of potential city centre developments on the drawing board providing larger floors, efficient designs, cutting edge building services, high seismic ratings, a “dress circle” location in the CBD, and views of the harbour. These new buildings are likely to drive net rents higher, but the cost is worth it for the improved quality in office space, and will further improve investor confidence in Wellington.”

In Tauranga/Mt Maunganui, investor confidence was net positive 41%, up from 35% last quarter and 28% a year Simon Clark, investment sales director at the Colliers Tauranga office says the surge in confidence is due to population growth coming back after a few years of very flat growth.

“Tauranga is a place that people with money come to for the lifestyle that our city offers,” Clark says. “Some people who are selling up at good prices in other regions are moving to Tauranga. This is starting to drive a surge in residential and commercial building which is feeding back into all parts of the economy. Confidence has also improved now that the kiwifruit outlook is improving, with owners managing the PSA virus much better. Orchards that were difficult to sell are now achieving good prices.

In Hamilton investor confidence was a net positive 30%, compared to 31% last quarter and 22% a year ago.

Colliers International Hamilton director Mark Brunton says confidence levels have held up on the back of limited selection of quality stock and a stable economic environment.

“We continue to see relatively strong owner occupier activity in the commercial property market,” Brunton says. “These businesses are increasingly buying their own property whereas historically they were more likely to lease premises. This activity, combined with investors holding on to their properties, are limiting the number of offerings on the market. The only cloud on the horizon is the prolonged drought conditions in the Waikato but this is unlikely to materially change the tight supply of property on the market.”

In Napier Hastings, confidence was a net negative 3%, level with last year. However, Colliers International Hawkes Bay franchise manager Cam Ward expects confidence levels will climb soon.

“Our office had a strong start to 2014 with the office’s best February on record,” Ward says. All indicators point towards the commercial property market building on the momentum created over the last year. The year started off with strong investor demand and tenant movement as buildings undergo strengthening and redevelopment.

Demand for quality stock has been evident with good interest from investors across the country. This was seen in the recent auctions of properties including Godfreys, Vodafone, and a Taradale pharmacy, which sold at very low
yields.

“The recent announcement of the relocation of Kiwibank’s regional office in Hastings will have a great impact on surrounding vacancies and it is likely that investor confidence will rise in that part of the region. The 2200m²

regional office was brokered by the Hawkes Bay Colliers office and will provide over 100 new jobs. This is significant for the region and will have a huge impact on the Hawke’s Bay area. This is the first tangible result from Council’s programme to encourage business movement towards Hawkes Bay.”

In Queenstown, investor confidence has stayed high over the past year, at a net 56% - the same as last quarter and only slightly down from a net positive 57% a year ago.

Alastair Wood, managing director of Colliers International’s Queenstown office, says, “In the first quarter of this year the main economic drivers for Queenstown continued to improve. January saw a record number of guest nights, and construction activity continues to gain momentum with some larger projects underway including the $40 million upgrade by NZski of the Remarkables Ski Field, Stage One of the new 28,000 sq m Five Mile commercial development and the confirmation of two new schools.

“Higher levels of activity are flowing through to investor confidence. In the first quarter we saw increased sales activity and a firming of commercial property yields with central Queenstown achieving yields of between 5% - 5.5%. Frankton area commercial yields are 6% - 7% and industrial at 7 – 7.5%.

Colliers’ quarterly confidence survey asks commercial property market participants about their views on the outlook for commercial property investment over the next 12 months. The results are based on 3707 responses to
this quarter’s survey.

ENDS

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