Up She Rises

It has been a frenetic first half of the year for the commercial and industrial property market, with more deals being done than for any first six-month period since the Global Financial Crisis.

Auckland has been leading the charge, with Bayleys Real Estate’s sales and leasing volumes in the region up 26% in the five months to May, compared to the same period in 2013. 

An increase is sales activity has been particularly evident in the under $5 million sector where most of the market’s business continues to be done. But what has also been noticeable has been the significant lift in sales in the next tier up – the $5-10 million price bracket. 

While there have been some big development land sales, investment property sales north of $10 million have been thinner, constrained by few good big properties being brought to market in the early part of 2014. That is likely to change on the back of some large office and industrial opportunities for sale in the second quarter. 

In recent weeks, Bayleys has also been invited to pitch on several $20 million-plus property listings, all quality offerings, which suggests the high value end of the market could gather some legs in the second half of the year. We would expect a number of $50 million-plus sales and at least one $100 million-plus transaction to be concluded. 

Office and industrial property close the gap on retail: Yields on quality retail properties have been consistently firm over the past few years, with most offerings at the popular lower to medium value end of the market selling at capitalisation rates of 5-7% . 

Despite all the conjecture about the impact of internet shopping on retailing, there is still strong tenant and investor take up of well located shop premises and this is likely to be the case well into the foreseeable future. However, yields on office and industrial properties have closed the gap on retail as an improvement in both the quantity and quality of offerings has met with investor approval.

Rental growth modest … but watch this space: Tightening vacancy rates have substantially reduced the need for incentives to secure tenants, which has stabilised net effective rentals. Rental increases are occurring but are still at relatively low levels with many leases having CPI-related rent reviews. 

It takes time for rentals set on new leases to work their way through the market but it is inevitable that significant increases lie ahead.

Surging syndication market: A recent offering of a Bunnings warehouse in Silverdale just north of Auckland, marketed on behalf of  Augusta Funds Management, received the most enquiry Bayleys has ever had on a syndication scheme and closed significantly oversubscribed within a very short space of time. Expect more syndication offerings to be a feature of the latter half of 2014. 

Dust from seismic shake-up settles: Seismic risk is no longer the big issue of a year or so ago when it was the dominant topic of conversation at property forums. There is still a market for earthquake-prone buildings as evidenced by recent sales of century old buildings in Karangahape Road, Auckland with seismic assessments of less than 33% of New Building Standard.