Offshore buyers snapping up prime Auckland real estate

The Pernod Ricard building in Auckland’s CBD has sold for $26.6 million in the largest Auckland commercial property sale to an offshore investor so far this year.

The buyer is a syndicate of five high net-worth European investors making their first investment in New Zealand. The property, located in Auckland’s Viaduct Harbour’s office precinct, was sold by Bayleys Real Estate executive director David Bayley, on behalf of NZX listed Goodman Property Trust.

Bayleys and Pernod Ricard (NZ) are anchor tenants in the 6,900 sq m, 6-level office sq m building. It is located on a 2,500 sq m perpetually renewable leasehold site, with the next five-yearly ground rent review in July 2010.

David Bayley says the transaction was one of the most challenging he has had to negotiate in 35 years of selling commercial and industrial real estate - with the recent significant upward movement in the exchange rate being one of the reasons.

“The volatility of the exchange rate is not just an issue for exporters it also has substantial impact on offshore parties that are looking to invest money in New Zealand,” he said.

“In this case, the Kiwi dollar was appreciating quite quickly over the period in which the sale was being transacted and this complicated negotiations considerably. However, at the end of the process we were able to finalise a deal that worked for both parties.”

He says the building attracted a good level of overseas interest which is reflective of the pick up in international investment enquiry in New Zealand property this year.

David Bayley has another medium-sized office building in Auckland’s CBD under contract to a Singaporean investor, while and the recent marketing of Pauanui Lakes Resort drew interest from South Korean and Malaysian parties.

Bayleys also recently sold one of Auckland’s oldest pubs, the Occidental in Vulcan Lane, to a South-East Asian investor for $4.35 million.

David Bayley says the increase in offshore interest and activity is partly the result of New Zealand performing better than many international investment markets which have been hit much harder by the global economic crisis.

Offshore investors are also being attracted by New Zealand’s relatively stable and corruption free investment and political environment, straight forward land title system, a lack of stamp duty and capital gains tax, and the high rental income returns that New Zealand property provides.

“Income yields on our commercial and industrial property have always been higher than in many other countries. An investor in Hong Kong, for example, can borrow in their home market at an interest rate of less than 3% and purchase good quality, higher value property here which is returning seven to 10%, so it makes this market very attractive for them,” he said.

“They also love coming down here – they see New Zealand as a safe haven both from a lifestyle and investment point of view.”

Bayley says proposed changes by the National Government to overseas investment regulations and a relaxing of the rules covering residency eligibility for high net-worth investors is also likely to stimulate more offshore investment interest in New Zealand property.

The main constraining factor at present, he says, is the recent appreciation of the New Zealand and its volatility.

“If the Kiwi gets down below 60 cents US again, there may well be an upsurge in the number of offshore offers being made on substantial New Zealand property.”