New Zealand a shining light in global market
With its reputation as “the shaky isles” seemingly a distant memory, New Zealand’s commercial property is emerging as a bright spot in the global market.
According to a report released by JLL, there were transactions worth NZ $2 billion last year, including a stunning 188% lift in sales during the second half.
That’s the strongest market performance since 2007 and comes right after the NZ central bank intervened last year in an attempt to cool a red hot residential market .
So what is driving this resurgence in the land of the long white cloud? The greatest factor is the strength of the economy, growing at an annualised rate of 3% and chalking up 12 consecutive quarters of growth.
The strength is broad-based, with the dairy sector milking higher farm gate prices and low interest rates improving manufacturing sentiment and consumer spending. There is also a healthy injection of government stimulus in the form of an infrastructure rebuild for earthquake-hit Christchurch.
International investors like New Zealand’s well developed trade links into Asia, low sovereign risk and transparent market economy. But the real bonus is the higher yields prime property earns compared with other Asian Pacific markets.
To date, most interest has been Auckland bound, with the largest city accounting for 76% of sales, followed by Wellington at 10% and Christchurch 8%. The office sector is the most popular but industrial property also had a strong second half with a 33% jump in transactions.
Source: JLL New Zealand Transaction Trends
New Zealand’s growth formula is proving attractive to portfolio investors based in Singapore, Canada and Australia, but it is private investors who are dominant. In 2013, they accounted for 54% of reported sales, way ahead of corporates at 24% and REITs at 11%.
Surprisingly, it is assets in the NZ $5-10 million range which are showing the strongest demand, followed by larger properties valued at NZ $20 million or more.
On the demand side, tenants are returning to the market on the back of a strengthening economy. CBRE reports that the key Auckland CBD Office Vacancy rate fell to 10.3% by the end of last year after reaching a peak of 13% in 2010. Auckland suburban office vacancies also contracted, down to 9.5% with higher demand in late 2013.
Source: JLL New Zealand Transaction Trends
With a limited number of new developments coming onto the market in the next year and occupier demand starting to accelerate, office rents in Auckland’s CBD are forecast to rise by around 5% in 2014.
With New Zealand likely to move into the next phase of an expansion cycle, that sets the scene for continued downward pressure on yields and an increase in what JLL calls “value add plays”.
If strong buyer activity continues, that also sets the scene for investors broadening their search out to well-rated industrial and retail properties.
Of course, New Zealand has in the past seen promising rebounds evaporate without much notice. But good property market fundamentals and broad based economic strength are showing up plenty of positive signs for commercial property owners on the other side of the Tasman.
