Auckland commercial property snapshot: volumes down, prices up, demand outstripping supply.
Wednesday 5 June 2013, 1:48PM
By Lily & Louis
614 views
By James Kellow
Director, New Zealand Mortgages & Securities
Everyone knows the Auckland residential property market is hot, with 17 suburbs now in the $1 million club. But what’s happening in Auckland’s equally important, although not as widely reported, commercial property sector?
The availability and sales of investment grade commercial properties – those of $5 million or more – help provide a snapshot of the local economy. Business, investor and lender confidence is reflected in the numbers and values of sales.
According to Jones Lang LaSalle Research, total sales in 2012 were less than half those in 2009 (55 compared with 122).
At first glance, it may seem that the market has slowed. In fact, demand is high – there simply isn’t enough stock coming up for sale. This is causing sales prices to rise, with more than one Auckland property identity commenting that “7% is the new 8% (cap rate).”
The large number of 2009 sales shows how long it took for banks, finance companies and distressed property owners to clear the hangover from the 2007 GFC.
There has been a limited amount of new building construction over the past five years, which is interesting as interest rates have remained low. There are now fewer vacancies and rents are increasing. Savvy
commercial property owners are keeping hold of their buildings, resulting in a lack of stock for investors to buy.
In the five months to May 20 this year, only 19 commercial, industrial and retail properties worth more than $5 million have sold.
Recent notable transactions include the GHD Centre in Freemans Bay, which sold for $63 million at a 7% yield. Courier Post House, Victoria Street, sold for $22.8 million at a 7% yield. Silverdale Retail Centre achieved $78 million with a yield of 7.2%. There is currently a large industrial sale pending that will return less than 7% yield.
Buyers of these types of properties are often borrowing around half the purchase price, with interest rates ranging from 4.5% floating through to 5.65% fixed for 5 years.
Despite the lack of property available for sale, New Zealand Mortgages & Securitieshas secured financing approvals for over $300 million of transactions so far in 2013.
Tenants are demanding Greenstar rated buildings, modern floor plates and better built working environments. This, combined with the sales prices being achieved and low interest rates, is encouraging developers to build more properties to meet demand.
Auckland commercial, retail and industrial property sales over $5 million
Source: Jones Lang LaSalle Research
2008 sales 91
2009 sales 122
2010 sales 80
2011 sales 96
2012 sales 55
2013 sales (to 20 May) 19
James Kellow is Director of New Zealand Mortgages & Securities. Over the past 15 years he has arranged finance for more than $5billion of property investment and development transactions. New Zealand Mortgages & Securities advise and manage borrowers with more than $1.5 billion of assets, primarily Auckland commercial property.
For more information, please contact:
Jacqui Ansin
Lily & Louis
Phone (09) 360 4466
Mobile 021 503 335
jacqui.ansin@lilyandlouis.com