After seven long years of little growth, the Wellington economy and commercial property market look to be on a sustainable recovery path, according to the head of one of the city’s leading real estate agencies.
Bayleys Capital Commercial’s managing director Mark Hourigan says the turnaround in the Wellington commercial and industrial property market, which was evident in the latter part of last year, has continued on into 2015 – with clear signs of improvement in both sales clearance rates and leasing volumes.
“Leasing activity is a good barometer of the state of a region’s business and economic environment. Encouragingly, we’ve noted three of our busiest leasing months in recent times from March to May – with 36 transactions concluded across all sectors of the market,” Mr Hourigan says.
“We have also recently concluded one of the year’s biggest industrial leases – a 3300sq m warehouse and office building in Seaview to a state-owned enterprise for nine years at a net annual rental of $390,000.
“The increased number and variety of leases being undertaken is a reflection of the broad-based recovery that is occurring across the Wellington region at present driven by business expansion.
“It’s been a long time coming and follows seven hard years of little business growth and a battening down of the public sector by a government determined to balance its books.”
Mr Hourigan says the recovery has been led by the industrial property market, where vacancy rates have been declining for the past two years. In the retail sector, well located A-grade space is in strong demand, and it is encouraging to see a number of leading retailers such as Briscoes, Bunnings and K Mart committing to substantial new stores.
“Large-scale office leasing activity remains subdued but the smaller to medium-sized end of the market is active again,” Mr Hourigan said.
“On the sales side, the high clearance rates that were a feature of our last two Wellington Total Property auctions in 2014, when 11 out of 14 properties sold under the hammer, have continued into this year.
“In our first three commercial auctions, 11 out of 12 properties sold under the hammer, and we have recently had a significant number of larger property sales by tender and private treaty.
“Interestingly, our market is again attracting enquiries from investors from Asia, as well as from other parts of New Zealand, because of a belief that there is more upside potential left in Wellington than in Auckland.”
Mr Hourigan says income yields are also higher in Wellington than in Auckland – acting as another enticement for investors.
He says that helping generate this renewed investment confidence are indications that the current recovery is likely to be a sustainable one – with the NZ Institute of Economic Research forecasting Wellington’s economic growth will accelerate to an average of 3.1% a year over the next five years.
“The business promotion body Grow Wellington has noted an increase in business activity and growth in numbers of businesses operating in Wellington, along with stronger business confidence and profitability,” Mr Hourigan says.
“It is also reporting a growing number of companies signalling their intention to increase investment and take on more staff. This increase in business activity means employment numbers within the region have recovered to close to their pre-global financial crisis peak, and skill shortages are becoming evident – particularly in information and communication technology as that sector continues to expand.
“The region is also experiencing considerable growth in construction activity and employment – led by a massive roading programme, with the 100 kilometre Northern Corridor from Wellington airport to Levin the biggest project.”
The continuing seismic strengthening of buildings, as owners face up to the reality of legislative requirements to avoid any slump in property values, is also fuelling the construction sector.
Meanwhile, many eyes are on Wellington airport’s upgrade of its infrastructure. A $250 million five-year capital development programme includes the expansion of domestic and international terminals, a hotel, multi-storey car park, and retail park expansion. The airport also has big plans for further expansion longer term by extending its runway by 300 metres to the south, opening it up for direct long haul flights from and to Asia and North America.
A survey commissioned by the Wellington Chamber of Commerce found the airport’s limited international capacity was perceived to be the biggest obstacle to the region achieving its economic potential.
“Bayleys, like many businesses in and around Wellington, wholeheartedly supports this bold initiative and sees it as a crucial element in improving the region’s business environment,” Mr Hourigan says.
Neil Prentice writes for Bayleys Real Estate
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