Yield-hunting offshore investors put NZ on the map

The global hunt for higher-yielding commercial property assets has propelled New Zealand onto the world stage, leading to a significant uptick in offshore investment at the top end of the market.

That’s according to Colliers International’s 2019 New Zealand Transaction Review.

The report was prepared by Colliers International Research in collaboration with the agency’s market-leading Capital Markets team.

It found 2019 had been another outstanding year for commercial and industrial property in New Zealand.

Peter Herdson, National Director of Capital Markets at Colliers, says transaction activity has been bolstered by positive market dynamics.

“These dynamics include supply and demand imbalances, solid employment rates, benign tax requirements, high transparency and low interest rates.”

Herdson notes private, local investors remain the lifeblood of sales activity in the commercial and industrial sector for many parts of New Zealand.

“However, New Zealand real estate has also been actively pursued by offshore investors. This is important for the long-term stability and health of the sector, along with the additional depth and liquidity it provides.”

Richard Kirke, International Sales Director on the Capital Markets team, says the global hunt for higher yielding assets has propelled New Zealand onto the world stage.

“Access to flagship properties with market-leading returns, diversified and defensible property portfolios, and the creation of new, international-grade property in New Zealand are pivotal to this.

“Given global market conditions and the attractiveness of our stock, it is hard to see this enquiry slowing.”

The report found increasing depth and steady growth in transactional numbers above $5 million. There is also less cyclical volatility in sales activity for properties selling at or above this price point.

Kirke says a review of the types of purchasers seeking properties $5 million and above since 2016 shows sizeable growth in syndication, listed property vehicles and offshore parties.

“An increasing number of offshore investors have entered the local market, particularly in the last five years, with a focus on flagship retail and office assets.

“Nationally, offshore investors accounted for 72 per cent of all office sales of $50m or more between 2017 and June 2019.

“More recently, offshore parties have also been targeting industrial properties, both vacant land and buildings.”

The report found obstacles to the ongoing growth of the sector include global economic fluctuations and the potential for a slowdown in economic activity locally, predominantly driven by lower business sentiment.

Chris Dibble, Director of Research and Communications at Colliers, says growth is currently slowing from super highs.

“However, a floor slightly below long-term averages seems to be achievable, which will alleviate risk concerns.

“Indeed, the foremost challenge to increasing sales turnover is the ability for investors to source properties to purchase.

“While activity is solid, and opportunities do arise, it will be testing for investors looking to grow their portfolios.

“Along with the view that interest rates will remain low for an extended period, investors waiting in the wings will add to pent-up demand that will drive value further upwards, especially in the $20 million plus market.

“Active investors seeking out prospects, both on- and off-market, will be presented with the most opportunities – fortune favours the brave.”

The report found approximately $10 billion of commercial, retail and industrial property has transacted each year in New Zealand over the past four years, with some 5,000 to 6,000 properties changing hands each year.

This represents 5 per cent annual turnover by value within New Zealand’s $217 billion commercial property sector – a similar turnover rate to the $1.1 trillion residential sector.

Strong growth in the $2 million to $4.9 million market since 2011 highlights the attractiveness of this price point for investors as well as the incremental price creep, especially in the past decade.

About 50 per cent of annual sales activity is in the industrial sector, while retail makes up around 25 per cent.

There has been no significant variation in retail sales activity despite reports of more challenging conditions for some retailers.

The office sector has lower turnover than the industrial and retail sectors, but higher aggregate price volumes. This reflects the scale and higher value of office premises, especially in main city CBD markets.

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