South Island commercial, industrial market in good heart

The commercial and industrial property market around New Zealand is in good heart as 2015 draws to a close.

Although Auckland is leading the charge, there are different dynamics and fundamentals affecting sales and leasing values and volumes in the regions – particularly in the South Island.

Marlborough/Nelson
Bayleys Marlborough general manager David Lee says the Marlborough economy is largely driven by the wine industry and following a lull post-GFC, and a perceived oversupply of wine on the international market, the wine industry has bounced back with new confidence.

“In 2014, 15 resource consents were approved for wineries to expand their production facilities, and vineyard development has also been evident. This is a positive trend, and the flow-on spend into Blenheim will follow,” Mr Lee says.

“Enquiry levels for commercial and industrial property in Marlborough have been high on the back of rising property values in major centres, and the fact that modern technology allows businesses to operate outside main centres.”

Mr Lee says there are developers looking for opportunities to build but a lack of tenants ready to commit.

“A lower population base can be a barrier to smaller business viability. Despite this, investors are coming from outside the area, tempted by the higher yields achievable,” he says.

Mr Lee adds that with tourism picked to be New Zealand’s largest export earner, the Marlborough region should benefit from an increase in tourism numbers.

Over the hills in Nelson, the development and growth of bulk retail in outlying areas like Stoke and Richmond, and the pickup in industrial property, are heartening trends, according to Bayleys Nelson commercial manager Tony Vining.

“Analysis shows strengthening yields for well-located, securely leased properties with high seismic ratings.”

Mr Vining says over-regulation and compliance costs appear to be holding back new development, although there are some positive glimmers.

“The council has given support to inner-city apartment development by waiving development levies, and good opportunity exists in the conversion of underperforming, but well-located motel and accommodation freehold-going-concern operations to apartment complexes.”

Mr Vining says he believes recent announcements that several airlines will be introducing new services to Nelson will boost both the business and accommodation sectors.

Canterbury
The rebuild continues in Christchurch, with new developments that have sat on the drawing board for some time starting to come out of the ground.

Bayleys Canterbury general manager Pete Whalan says the attention is once more on the area inside the four avenues.

“Large cornerstone projects in the city have gained significant corporate tenant pre-commitment, and hospitality precincts have had good tenant uptake,” he says.

“However, A-grade office property is already in an over-supply situation. Rents for some vacant new office space in the CBD are being pitched at less than $300 a square metre, making it very affordable and likely to impact on suburban office vacancy rates, as office tenants opt to move back into the CBD.”

Mr Whalan says industrial property opportunities have been keenly sought after, with development land selling well and significant design-build work under way.

Yields remain very low across all sectors. Good investment stock is limited across the market but demand remains high.

“The bulk of investor enquiry for commercial and industrial property in Christchurch is coming out of the South Island, with some enquiry from Auckland investors, and some out of Asia,” Mr Whalan says.

Dunedin
2015 was a steady year for Dunedin’s commercial and industrial real estate sector, with well-located, well-tenanted and well-presented property continuing to attract buyer interest, Bayleys Dunedin commercial manager Robin Hyndman says.

“Those properties that are seismically compromised, of leasehold tenure, or vacant, have typically been heavily discounted but otherwise, the market is steadily ticking along,” he says.

“Confidence and growth expectancy are the main drivers behind investment decisions in Dunedin – helped along by low interest rates.”

Mr Hyndman says the Exchange and the Warehouse precincts, along with areas south of the Octagon, continue to attract attention from developers, with a new hotel about to open, various office redevelopments under way or completed, and warehouse conversions to residential apartments.

“We also expect that the benefits of fast internet connectivity to the world through Dunedin’s Gigatown initiative will attract investment and new business to the city.”

Queenstown
There has been a surge of investor confidence in the Queenstown area according to Bayleys Locations Queenstown managing director David Gubb.

“The escalation of work at Frankton – close to Queenstown airport and the Remarkables Park retail centre – is a huge positive for the Queenstown economy,” he says.

“The Landing retail centre is mostly spoken for now, while the Five Mile centre and other developments around Frankton will add at least 20,000 square metres of commercial space in the next year.

“The $17 million expansion of Queenstown Airport, along with the rapidly evolving Shotover Park industrial precinct, are encouraging signs that the Queenstown commercial and industrial property landscape is in good health.”

Mr Gubb says that on the back of these new developments come fresh leasing opportunities.

“Big name national and international tenants are providing confidence to the retail sector, while recently expanded international flight schedules and increased tourist numbers reinforce the need for expansion within the hotel and broader accommodation sectors.”