Market is ‘marching briskly’
Median Auckland industrial yields are now at their lowest point since Bayleys Research began tracking them
The commercial and industrial property market has continued to march along at a brisk pace in the first half of this year.
As the largest commercial agency in the country, Bayleys sales numbers provide a good barometer of how the market is performing.
Volumes for the first six months of 2015 are tracking at a similar level to last year. This stabilisation of the market is not a bad thing as another big jump in activity was unlikely to be sustainable.
What are some of the key trends that have become apparent so far this year?
Lower for longer
This time last year few commentators were predicting a fall in interest rates or that already firm yields would be squeezed even further. Our last Total Property auction results suggest yields are still falling, with two retail properties – a strongly located offering in Remuera and a small dairy in a retail strip in Mt Albert – selling at sub five per cent yields.
Median Auckland industrial yields are now at their lowest point since Bayleys Research began tracking them way back in 1988. It would be a brave pundit who would bet against some further tightening of yields particularly if, as is now being widely predicted, the Office Cash Rate [OCR] is cut again.
The low interest rate environment continues to be the key factor stimulating commercial property activity. With rates likely to stay low, or go lower, for even longer that big market driver is unlikely to change any time soon.
Wellington back in business
The first half of this year has confirmed the recovery in the Wellington market that occurred in the latter part of 2015 was no flash in the pan. Leasing and sales activity levels have continued to gather momentum this year on the back of what appears to be a sustainable recovery in the region’s economy and increased business activity and investment.
Asian investors are once again showing interest in the capital city and investors from other parts of New Zealand are also being attracted because yields have yet to undergo the sort of compression that is evident in Auckland and the market is at an earlier stage in the recovery cycle.
Investor confidence is reflected in the clearance rate in Bayleys’ Wellington auction rooms where 11 out of 12 properties put up for sale this year have sold under the hammer. There also has been a noticeable increase in tender and private treaty sales between $2 million to $5 million.
Pick up in the provinces
Some excellent results for provincial vendors have been achieved at recent Total Property auctions as investors cast their eyes further afield in search of good quality offerings.
In our first auction for the year, four retail units in a new convenience centre on the main road into Rotorua sold under the hammer to purchasers from Auckland, Hamilton and Matamata at yields of between 5.95 per cent and 6.7 per cent. At the same auction a new building on the main street of Dargaville, with a nine year lease to Rabobank, sold at a 6.6 per cent yield to a Northland buyer.
This followed the sale at an identical yield of another new building, also built by Wallace Development Co, in Palmerston North and with a nine-year lease to the NZ Automobile Association. It attracted 14 bidders and eventually sold to a phone bidder from Christchurch for $970,000.
Just recently our New Plymouth office has sold a big Carters building supplies outlet on the outskirts of the city for $6,250,000 at a 7.7 per cent yield. Not so long ago, a cap rate well north of eight per cent would have been expected for a provincial property of this size.
These sales reflect not so much a recovery in provincial economies but, rather, a large amount of capital chasing a limited supply of good property. Well built, well tenanted commercial property is a very saleable commodity in the current market.
Where to from here?
With interest rates likely to go even lower, we are expecting sales activity to continue at current levels in the last half of the year. However, it is doubtful whether we will see the same number of big ticket sales that were a feature of the latter part of last year. Not because of any lack of demand – there’s still plenty of that, particularly from offshore – but because the supply well has largely been drained.
For owners of properties who are looking to sell over the next six months, the very strong level of buyer demand will provide them with the best set of market conditions for a successful sale that we’ve had in a long time. A number of owners are already making that move and we are delighted to be able to present another wide and varied selection of property offerings from around the country in our latest Total Property portfolio.
John Church of Bayleys.