Another phenomenal year for commercial, industrial markets

In commercial and industrial real estate terms, 2014 was always going to be a hard act to follow, given it was the best year those sectors had experienced post global financial crisis – with new records set in many parts of the country for both the volume and value of sales concluded. 

Bayleys national director commercial real estate John Church says while it is too early to say just how 2015 will end up – given the company still has six of its traditionally busiest weeks ahead – all the indications are that this will be another cracker of a year for the sector. 

“There are variations evident across market sectors and geographical locations, with some of our sales and leasing teams already ahead of where they were for the whole of last year, while others have found this year more challenging – mainly because of supply constraints rather than any drop off in market demand,” says Mr Church, in Bayleys’ latest Total Property magazine, which was released today.

“It seems likely that market activity will end up at least on a par with last year if not ahead of it. This will be a phenomenal performance given that 2014 was an exceptional year.”

Mr Church says that, once again, Auckland has led the market forward with unrelenting investor demand continuing to outstrip supply and push prices up, evidenced by the fact that some properties have sold for several hundred thousand dollars over reserve at recent auctions. 

“Yields we thought couldn’t go any lower in Auckland have been squeezed even tighter. 

“For example, at our most recent Auckland auction, a Takapuna property with long-term development potential but where the tenant had just renewed for a final six years sold at a 2.4% yield.” 

As predicted earlier in the year, Mr Church says the large numbers of high-value transactions that were a feature of the Auckland market in 2014, where Bayleys sold close to $500 million worth of big ticket properties in the third quarter, haven’t recurred this year. 

“There is always a thin supply of quality $50 million plus properties available for purchase in our relatively small market,” he says.

“We have a queue of both onshore and offshore-based clients keen to get their hands on such offerings but much of the supply in Auckland was snapped up last year.

“Very high volumes of sub-$50 million Auckland transactions have continued, with a noticeable pickup in the sale of mid-range value mixed use properties which will have enhanced development potential under the Proposed Auckland Unitary Plan.”

Other parts of the country are benefiting from the Auckland frustration factor, according to Mr. Church.

 “As has been the case in the residential market, investors are looking for opportunities in markets where the competition is not as fierce and where income yields are higher. 

“Salespeople in Whangarei, Hamilton, Tauranga and Rotorua are all noting increased interest in their markets from Auckland-based commercial property investors.

Reflecting on transactional results across the year, Mr. Church says the biggest benefactor from Auckland’s high-flying property market is Wellington. 

“Our capital city is having a ‘belter’ of a year – pulling in a lot of investment capital from outside of the region,” he says.

“In particular, it has picked up where Auckland has left off at the higher value end of the market, with a significant number of large office building sales concluded so far this year.

“There is a swag of development and refurbishment projects under way across Wellington city, such as the $20 million redevelopment and expansion of the former Dominion Post complex in Boulcott St for Transpower. 

 “The exodus of big corporates to Auckland seems to have run its course, and a thriving IT and film sector is adding a new dimension to Wellington’s leasing market.”

Although the Christchurch post-earthquake rebuild may have peaked, there is still plenty of activity occurring there also, particularly in the new CBD that is gradually taking shape and which is enticing tenants back into the central city. It remains to be seen whether investors will follow. 

“The government has yet to secure investment partners for big anchor projects such as a convention centre and stadium,” says Mr. Church.

“It will be interesting to watch whether capital that has been heading south into Wellington from Auckland finds it way on to the mainland and into new private sector development projects, which are starting to make their way on to the market in Christchurch.” 

Neil Prentice writes for Bayleys Real Estate