Cultural heritage reflected in commercial property trends

5:00 AM Saturday January 21, 2017 Bayleys Commercial Team

Many Indians have purchased seven-day-dairies. Photos / Supplied

While much public attention dwells on where ethnic-based residential enclaves have become established across Auckland city, the commercial, industrial, and retail property interests of different ethnic groups have largely flown under the proverbial radar.

Auckland is one of the world's most culturally-diverse cities — with the fourth most foreign-born population, an international study has found.

The 2015 World Migration Report from the International Organisation for Migration, cites only Dubai, Brussels, and Toronto as being ahead of Auckland as cities where foreign-born residents outnumber the size of the local-born population.

With 39 per cent of Auckland’s population born overseas, the City of Sails is revealed to be more diverse than Sydney, Los Angeles, London and even New York. The study found Auckland was doing well in settling migrants, and was recognised as one of the cities “paying increasing attention” to the role migrants play.

According to Statistics New Zealand, Auckland, with a population of about 1.4 million residents, has more than 220 recorded ethnic groups living within its metropolitan urban boundaries.

Massey University sociologist Paul Spoonley said migration and Auckland’s growth “relies upon immigrants who are skilled and well-educated to play a key role — which they do. They get on with life and settlement in a new country.”

Bayleys national director of commercial real estate, John Church, said that for many migrants, an important evolutionary stage of “getting on with life” in New Zealand involved building their long-term investment portfolio — from starting a business, through to property investment in both the residential and commercial property sectors.

“In this respect, Auckland’s migrant community is simply replicating the long-established patterns of the European New Zealand ethnic population. Property investment — either residential or commercial — is the ultimate ‘bricks and mortar’ investment class,” Church said.

For migrants applying to settle in New Zealand, residential real estate doesn’t fit the Government’s definition of an ‘investment’ in the same way commercial and industrial property ownership does. The property must sit between the $1.5 million to $15 million dollar range.

Who is buying and where?

The sale and purchase documentation required to be completed in any property transaction does not specifically note a purchaser’s ethnicity. Accordingly, all data is anecdotally based — although the broad cultural diversity of sales personnel within Auckland’s commercial real estate environment reflects the requirement to service a corresponding percentage of ethnic buyers.

However, acknowledging that ethnic diversity is a major component of the commercial property sector, most of the bigger commercial and industrial real estate agencies in Auckland employ sales specialists with cultural and historic links to the Southeast Asian (Chinese, Japanese, Thai, Korean), Sub-Continental (Indian, Bhangladeshi, Pakistani), British, and South African communities.

Church said general consensus among migration consultancies was that, unlike for Auckland’s residential real estate market, the location of a commercial property was a far less motivating factor for ethnic owners in commercial and industrial sectors.

“In the commercial and industrial field, the building type, use, and zoning classification are more the predominant drivers,” he said.

“Our research tracks that feedback commonly received from ethnic commercial and industrial property owners is that travelling times and distances, within reason, were not constraining factors for determining where a workplace premises or investment property was located in relation to the owner’s residential address.

“While many second or third generation Aucklanders might complain about peak hour commuting times across the city, for those migrants from the likes of Beijing, Mumbai, or London, spending 45 minutes in the car is nothing.

“In fact, when you’re used to spending two hours-plus stuck in a jam on the G4 Beijing-Hong Kong-Macau Expressway or the M25, then any commute under an hour is considered a doddle.”

Retail property location was the exception though – with profile being a requirement to sustain foot traffic volume through the door. This was particularly pertinent for those buying owner/occupier premises.

Motels popular

Immigration consultants working with incoming new residents note that motels have also proven a popular sub-sector of the greater commercial property market. As businesses, motels automatically meet the Government’s income-producing “investment” criteria – and thereby receive a huge tick on the migrant property buying criteria list.

Virtually all motels have the added benefit of coming with on-site owner/manager’s accommodation – thereby instantly providing a residence and a business in one transaction.

In parallel, many of the suburban Auckland motels sold over the past three years have been situated in zones identified under the Proposed Auckland Unitary Plan as suitable for redevelopment into medium density housing — either allowing for continued existing use as commercial accommodation providers to reach the three-year business profitability qualification, or for the unintended consequence of becoming long-term residential property development ventures.

Church said migrant investors in this commercial property class had inadvertently been tagged as “land bankers” when in fact their original intent for buying the motel was for a purely cash-flow generating motivation to verify their business visa status.

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Fast food establishments have attracted Chinese investors

Chinese

Though the geographic definition of Southeast Asia encompasses Japan, Thailand, Vietnam, Indonesia, the Philippines and Korea, by far the biggest migrant population settling in Auckland from this region comes from China.

New Zealand Chinese Association national president Meng Foon said the dynamics for Chinese-descended commercial property owners has shifted considerably in the past 30 years — driven by a catalogue of vastly different social factors.

Of Chinese migrants who came to New Zealand in the 1960s to 1980s, many worked in Chinese fast food outlets, in factories, and low-skilled menial labour jobs such as cleaning, he said.

Motivated by a need to improve their social status, that generation saved hard, and from the mid-1980s onwards, increasingly began buying the commercial and retail premises they once worked in.

Networking within their own ethnic communities those fast food outlet owners were then able to offer new migrants to Auckland the same opportunity they once had — to establish and own their own businesses in their newly-adopted homeland.

As a consequence, that wave automatically moved up Auckland’s commercial property ownership ladder — from tenant to landlord, Foon said.

Concurrently, social change in China has seen an outpouring of capital from the communist state around the globe — including New Zealand. The post-2009 global financial crisis influx of Chinese capital around the world had seen a much more “moneyed” class of migrant coming to New Zealand — with a substantial capital base enabling them to buy commercial property much quicker than their predecessors.

Like their “long-timers” colleagues, these “come-lately” Chinese investors are fully aware there is a steady flow of compatriot migrants looking to move to Auckland and establish a business — notably in the low-value/high-volume retail niche, or the proven take-away food sector.

Foon said China’s one-child family policy had also played a significant part in the type of commercial property new migrants in their 40s and 50s were now purchasing in New Zealand.

As a result of only having one descendant to inherit the family fortune, Chinese migrants coming to New Zealand now were far wealthier than any previous generation and their buying budgets were considerably bigger — now easily up into the $5m to $10m bracket.

As metropolitan Auckland’s urban boundaries continue to swell in all directions, new retailing hubs are opening on a continual basis. More often than not the new owners tend to be ethnic or migrant Chinese — confirming their cultural proclivity for retail property ownership.

They take heart from the fact their network of incoming migrants from mainland China will always be looking for business opportunities, which these locations offer in abundance.

As research by Bayleys states: “It’s definitely a long-term vision as Auckland’s population continues to grow with no sign of abatement. Going back a generation or two, the same vision would have applied to the likes of Albany, once a giant apple orchard; Manukau, which was a vast vegetable

Cultural heritage reflected in property trends

While many second or third generation Aucklanders might complain about peak hour commuting times for those migrants from the likes of Beijing, Mumbai, or London, spending 45 minutes in the car is nothing.

John Church Fast food establishments popular with Chinese investors and dairies with Indian families.

garden, and West City, which was a strawberry patch.

“In 10 years time, what are currently new retail hubs in new outer suburban locations, will in time be considered part of the city’s neighbourhood fabric. From an investment perspective, that is something the ethnic Chinese owners of these properties have wholly embraced. They take a very long term view of their commercial property investment holdings,” the research concludes.

With the potential buyer pool for that small retail property sector now highly populated, and the limited number of new-build premises coming to the market, many commercial real estate agencies in Auckland are tracking this ethnic group moving into suburban commercial and industrial buying opportunities up to around the $2.5m mark.

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Many Indians have purchased seven-day-dairies.

Indian

Like the Chinese community, the Indian ethnic sector has moved up Auckland’s commercial property food chain over the decades… literally — from traditionally operating or owning dairies and small suburban convenience stores, to now owning what tend to be industrial investment properties and retail blocks up to around the $2.5m mark.

That includes the vertically-integrated dynamic of not only owning the business they work in, but also the property that business trades from. For dairies and convenience stores in particular, the suburban nature of these long-established premises dictates they often come with accommodation above or at the rear of the retail floor plan.

In effect, it’s an ethnic “work-from-home” scenario, according to New Zealand Indian Central Association past- president and commercial real estate salesperson Amrit Vasan. Such work/life properties enabled migrants to keep an eye on their children, and when at the appropriate age, bring those teenagers/young adults into the family business.

Auction results from the past three years show such premises across the Auckland isthmus generally sell for between $1 million-$1.7 million depending on location and the proportion of mixed-use residential floor space associated with the property.

In common with the Chinese, Indians — and to a far lesser extent Pakastanis and Bangladeshis — come from a history of high turnover product retailing — supported by the nature of having vast population bases to draw from in their originating homelands.

Vasan said restaurant premises were popular among new Indian migrants — for the opportunity to employ extended family members as the business grew.

As the number of suburban Auckland liquor outlets has grown across the city since the early 2000s, there has been anecdotal acknowledgement that a greater percentage of ownership has been seeded with the Indian community — new migrants and those who have been here for longer than three years.

Bayleys’ research noted: “We see that the Indian community feels comfortable and respected with its new life and position in Auckland society, envisages itself being here for generations to come, and is laying down the inter-generational foundations for wealth creation through commercial property investment.”

Vasan said new migrant Indians and established New Zealand residents of Indian descent tended to shy away from commercial office investments as the dynamics of dealing with business tenants was not something the ethnic sector was particularly familiar with.

British and South African

As entrepreneurial migrants with a bent towards setting up and running highly-skilled service-based and professional consultancy enterprises, these two like-minded groups have a penchant for small office blocks in Auckland — many bought as owner/occupier premises to house their commercial businesses.

Immigration consultant Robin Whalley said commercial property was often seen as “out of reach” for the average Brit in their home country — particularly in London, or the CBDs of the bigger provincial cities.

On migrating to New Zealand, they find entry-level valued commercial property ownership is far more achievable. With the psyche of avoiding central-city property ownership — largely the domain of corporates, institutional investors, and high net-worth individuals and trusts — this class of migrant investor tends to focus on city-fringe and suburban opportunities.

For owner/occupiers, premises are predominantly sought for professional services and consultancy-based companies employing up to eight or nine staff. In this category, the likes of converted city-fringe villas in mixed-use zonings are attractive, as are low-rise stand-alone office premises in and around Auckland’s bigger suburban centres.

Dovetailing this white collar segment is the fact that many British migrants in particular coming to Auckland are in the skilled building trades sector — plumbers, electricians, carpenters, painters, roofers and satellite dish installers — all buoyed by the ongoing demand in Auckland’s residential building sector… which ironically is nothing new, but in fact dates back to the late 1960s.

Whalley said that for new migrant British building “tradies” and technology contractors, their commercial property dynamic was quite simple — an approximately 240sq m industrial unit, usually in a terraced configuration of identically-built high-stud/roller door entry premises, with a large concrete floored workspace capable of housing two to three vans, supplies, and a small administrative office.

Whalley said historical accounts from such migrants slotting into this category are that the industrial premises they bought were usually in close proximity to their place of residence — with most of their client base radiating out from their commercial base. In Auckland, this geographic segmentation essentially broke the city up into the North Shore, West Auckland, the central suburbs, East Auckland and South Auckland.

It has been, and still is now, common to see the tenants of such industrial buildings bidding at auction to buy their premises when the landlord places it on the market for sale.

On the investment ownership front, feedback from migration consultancies is that both groups traditionally based their buying decisions on yield ahead of future development potential.

For South Africans, the continuing decline in the cross-rate value of the South African rand over the past decade has seen their buying power in Auckland’s commercial property scene trimmed by about 28 per cent.

In a period where the city’s commercial property values have been rising, excluding the post-GFC “black-spot” of 2009/2010, this has seen the number of South African migrant investors decline in particular, although once well and truly entrenched in New Zealand society their habits often go on to replicate those of multi-generational Kiwis dabbling in commercial property investment.

As entrepreneurial migrants with a bent towards setting up and running highly-skilled service-based and professional consultancy enterprises, the British and South Africans groups have a penchant for small office blocks in Auckland — many bought as owner/occupier premises to house their commercial businesses.

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Small garages and workshops are popular with Korean and other Asian investors.

Korean

According to the Korean Society of Auckland, like the Chinese and Indian ethnic groups, the Korean sub-sector of Auckland’s migrant population sticks with what it knows when it comes to commercial property.

Liquor consumption in Korea is more prevalent in private homes than in the country’s bars and cafes. Accordingly, more alcohol in Korea is sold through off-premise liquor stores than at public hospitality venues.

Korean migrants have a preference for purchasing liquor retailing businesses and premises when they relocate to New Zealand.

Sushi outlets, Korean restaurants, dollar stores, and unlicensed cafes, also feature highly on the migrant shopping list —from an operational and property ownership perspective, says the Korean Society.

Also prevalent in the Korean commercial property ownership dynamic across Auckland are automotive-related premises — such as repair garages, auto-electrical plants, and paint and panel repair workshops. The requirement for linguistically-constrained mechanics and floor staff to engage in minimal language interaction with customers suits many Korean-owned businesses who employ staff from their home nation.

Property sales data held by Bayleys indicates most of Auckland’s automotive repair and maintenance premises are in industrial areas and sell for between $800,000 to around the $1.5 million mark — fitting the budgets of many new Korean migrants coming to New Zealand on business and investor visas. 

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Liquor stores are a popular investment among several migrant groups

Russian

Russian migrants are a small and quiet migrant group which has flown very much “under the radar”. Like the South Africans, Russians traditionally bought Auckland commercial and industrial property based on yields rather than location, development potential, or any association with residential benefits.

Russians have long been mindful of Europe’s internal migration conundrum — initially with large numbers of migrants exiting the former Soviet Block western wall countries of Romania, Hungary, Bulgaria and Poland dating back to the mid-1990s, and more recently with the Syrian and Iraqi refugee crisis.

Vast sums of Russian investment capital was moved to London’s commercial property market in the 1990s and 2000s. By virtue of geographic isolation and New Zealand’s relative obscurity as a commercial investment destination, only a small amount of Russian capital arrived in Auckland’s commercial and industrial markets.

The sums have continued to trickle in at comparatively small levels. It should be noted though that while the investment amounts are sizeable — $6 million-$10 million spread across multiple property portfolios — the number of Russian migrants captured in this category is comparatively small, numbering in the dozens rather than hundreds or thousands.

Like the South Africans, Russian investors chased yield as a primary stipulation for their capital return — with virtually all purchases being as investments rather than for owner/occupier purposes.

Bayleys’ research indicated that as yields for Auckland commercial and industrial property had evaporated over recent years, so had much of the Russian migrant investment capital.

With ongoing nervousness over the viability of the European Union and the impact any trade-zone break up would have on London, Paris, and Berlin’s property markets — combined with the never-ending refugee influx — the size and number of Russian investment funds may well return back to Auckland’s commercial real estate.

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John Church, Bayleys