Investors look beyond Auckland in good year for North Island commercial, industrial property
Stock constraints within the Auckland market are prompting investors and motivated owner/occupiers to look to areas outside Auckland for commercial and industrial property opportunities.
Bayleys in the North director Tony Grindle says buyers are starting to gravitate northward where they are seeking out quality, seismically-compliant buildings across all the sectors.
“Value judgements are being made based on returns and tenant credentials, countered by the fact that the capital gains achievable will probably not match those in larger centres,” Mr Grindle says.
“Yields across the retail, office and industrial sectors range from 6.6% to 8%.”
Mr Grindle says council policies such as development levies are constraining new commercial and industrial developments in Whangarei.
New developments throughout Hamilton over the past year have given the city’s commercial and industrial sectors a boost and, along with the refurbishment of some office building stock, has driven the movement of tenants, according to Bayleys Waikato and Bay of Plenty commercial manager, Richard Graham.
“There is strong demand for tenanted investments across all assets classes. The industrial sector is the most active sector overall and this is being spearheaded by owner/occupiers,” Mr Graham says.
Yields are improving due to stock shortages and increased buyer interest out of Auckland.
“Tenanted stock yields in the Waikato region are sitting at around 6-7% in Hamilton itself, and around 8% in the provincial towns.”
Mr Graham says more development is planned in the Waikato in 2016, and the new expressway between Auckland and Hamilton will encourage further investment.
Bay of Plenty
The industrial design/build sector – led by owner/occupier buyers in the Tauriko industrial estate on the city fringe – and the development of two large landmark office complexes with tenant commitment in the city, are highlights of the 2015 Tauranga market.
Mr Graham says new public sector activity in the CBD will drive central growth, while the industrial sector continues to show resilience with port expansion providing confidence.
“Handbrakes on the region include vendors having nothing to replace their buildings with if they sell, due to a shortage of quality stock. However, the overall vibe is positive,” he says.
New developments have also kick-started activity and interest in the commercial and industrial market in Rotorua, according to Mr Graham.
“The industrial sector is leading the charge and the manufacturing sector is growing. Demand from owner/occupiers is strong while for investors A-grade office space is still popular.”
Gisborne/ Hawke’s Bay
The biggest positive to come from the Gisborne commercial and industrial market in 2015 has been the sale of several seismically non-compliant central city buildings that will either be demolished, or rebuilt and strengthened, adding some quality tenancies to the pool and improving net rental returns.
Bayleys Gisborne director James MacPherson says further opportunities lie with remaining non-compliant buildings but some of those may require local body intervention to force owners to strengthen – or sell to developers at essentially land value or less.
He says interest from investors outside Gisborne has improved lately due to a lack of stock and minimised returns in other areas.
“The cheaper purchase price does naturally tend to be offset by a lesser capital gain.
“The bulk of investment buyers are local but this may change as upgraded holdings are eventually on-sold with strong tenant covenants, therefore greatly improving net yields.”
Bayleys Hawke’s Bay commercial and industrial sales manager, Daniel Moffitt says significant forecast growth in the pipfruit industry is expected to put demand back on industrial land for redevelopment.
Mr Moffitt says yields remain steady across all sectors – right across the region.
“Quality investment stock with national tenants in place is in high demand. Napier remains popular on the leasing spectrum, while Hastings has seen some major developments occur in key sites.
“Meanwhile, Havelock North continues to grow as a food destination with five new restaurants/cafes opening this year.”
There is increased interest in Palmerston North as a distribution hub, according to Bayleys Manawatu commercial sales manager Karl Cameron.
“Given Palmerston North’s size and scale, opportunity exists right across the office, retail and industrial sectors of the market,” says Mr Cameron.
“Yields vary significantly between new-builds and older, existing buildings with a range from 6.5% to 12% attainable. New developments with first class tenants on long-term leases are seeing low yields.”
Mr Cameron says because Palmerston North is a provincial city with relatively high dependence on the rural hinterland, the depressed dairy sector may be a dampener on the wider Manawatu region.
“However, national buyers are looking toward Palmerston North as an investment location because of the higher yield expectations.”
Lower interest rates have fuelled investor confidence in the Wellington commercial and industrial market during 2015 – most noticeably from investors outside Wellington, according to Bayleys Wellington director, Mark Hourigan.
“The flow-on effect of this is a shortage of investment stock, lower vacancy rates, and higher prices being achieved,” he says.
“Also worth noting is that Lambton Quay retail has returned to a less than 2% vacancy, with rents rising above $2500 a square metre. This has not been seen for some time.”
Mr Hourigan says all sectors are seeing compression of yields, with the exception of some small pockets such as the Lower Hutt retail strip.
He says the lack of development land across all sectors and seismic issues, are factors that may hinder progression in the Wellington region’s commercial and industrial sector in the medium future.
Jody Robb writes for Bayleys Real Estate