KEY POINTS:
Despite the economic slowdown, good tenant and investor interest in the Hawkes Bay continues to underpin the commercial and industrial property.
Ian Little, senior analyst for Bayleys Research, says the market has remained active during the past 12 months with tenant demand remaining high, particularly for retail property within established shopping precincts.
The latest occupancy survey conducted by Logan Stone shows the overall occupancy rate to have risen to 95.1 per cent from 94.8 per cent a year earlier. The survey tracks the occupancy rates within ground floor retail tenancies in a defined retail core in Napier, Hastings, Havelock North and Taradale.
The highest occupancy rate was recorded in Havelock North for the fourth year running and stood at 99.2 per cent. Little says this consistently high rate of occupation has been maintained despite the expansion of the retail sector in Havelock North in recent years as a result of the town's growing popularity as a lifestyle location.
Hastings is the only centre which has experienced a reduction in occupancy as a result of a number of small outlets falling vacant.
"These units have proved more difficult to re-let as their size makes them unattractive to major national retailers and smaller scale operators are tending to adopt a wait-and-see approach as a result of current economic conditions," Little says.
In Napier's main retail core, only 4.1 per cent of shops were vacant. However, the tenant mix has changed slightly with an increase in national chains such as Amazon and Baby Factory establishing a presence in the city.
The appeal of the central area has been bolstered by the refurbishment completion of the National Property Trust's Ocean Boulevard with anchor tenants Living and Giving, Michael Hill Jeweller and Ezibuy attracting increased foot traffic to the area.
Little says retail investment property continues to attract high levels of interest, although recently there has been a shortage of offerings brought to market. However, a number of notable sales have been concluded by Bayleys Hawke's Bay including the Flaxmere shopping village - a community centre anchored by Foodstuffs, United Video and the Post shop which sold for $4.2 million, representing a yield of 11.3 per cent. In central Napier, Mid City Plaza, which fronts Emerson St and comprises a number of tenancies over about 3216sq m, sold for $5 million, representing a yield of 8.4 per cent.
Both properties were sold to overseas investors with the Flaxmere property being purchased by a Hong Kong buyer while Mid City Plaza's buyer was from the United Kingdom, reflecting the fact that international interest in New Zealand property is not limited to the major urban centres.
In the office market, Bayleys Research says there has been a marked occupier preference for higher quality office buildings in the region. In addition, current government policy stipulates that any new space to be leased by government departments must be "Green Star" rated.
Little says these influences have led to continued high levels of uptake within recently developed office space in the region and agreement for the development of the first "Green Star" rated offices at the ex-British American Tobacco Site at Ahuriri. The property was purchased in 2007 by furniture retailer Big Save which is utilising some of the site for its own purposes. However, it is redeveloping surplus blocks
for office and retail use. Market reports suggest the Ministry of Education has agreed a lease for about 1250sq m of office space to be built to meet "Green Star" rating standards.
The landmark PricewaterhouseCoopers building, which was completed in 2007, has continued to attract high levels of occupier interest. Following initial lettings to PWC along with The Property Group, Fuji Xerox and CACI Clinic, there have recently been further leases including the Employers and Manufacturers Association. The leases were agreed at rentals of $190-$200 per sq m, at the upper end of the region's rental scale ranging from $80-$120
per sq m for secondary space to $150-$200 per sq m for high quality premises. Opex (operating expenses) range from $30-$50.
Further afield, the final space within the Wallace Developments office and retail complex in Havelock North has been leased with rental rates for small units of about 25sq m reaching nearly $300sq m.
While there was strong office rental growth from 2004-2007, this has flattened off and market sentiment suggests that further upward movement is unlikely in the short term, says Little.
"The economy has cooled and overall there is a surplus of office accommodation on the market, partly as a result of space vacated by tenants moving to higher quality accommodation proving difficult to back-fill."
Investment property continues to be tightly held with little brought to market in recent months. The shortage of investment opportunities has resulted in yields softening less than has been experienced in the industrial market, says Little, with good property fetching between 8 and 9 per cent.
In the industrial sector, Bayleys Research says "agri-business", particularly an expanding viticulture sector, has driven industrial expansion in recent years which has, in turn, placed pressure on land supply and driven up prices. Hastings District Council has acted to alleviate the pressure with the proposed creation of industrially zoned land at Omahu Rd and Irongate through a plan change, rezoning about 80ha of land for industrial use.
During the past two years, privately owned subdivisions have been brought to market, such as the 5ha ex-Pacific Bark site in Severn St, Napier, where sales of sites between 1520sq m and 5000sq m have been agreed at prices of up to $200 per sq m.
While, there have been high levels of purchaser demand for sections, development of the land has been dependent upon obtaining occupational rents that make the end product financially viable, says Little.
"Given that the most significant increase in land values has occurred in recent years, long-term landowners are in a good position as their lower original purchase prices mean they can develop or introduce land to the market at far more competitive prices."
Current rentals for top quality industrial space in Napier and Hastings generally range from $50-$100 per sq m for the warehouse space, and $100-$150 per sq m for the office or showroom component.
"As has been the case across the country, the slowing economy and impact of the global financial crisis have resulted in local industrial investment yields softening over the past year," says Little. "Prime yields, which had sat as low as 6 per cent in 2006-07, have moved out to around 8 per cent, while secondary yields have now pushed out to in the region of 10 per cent or more. These levels, however, are much more in line with long-term averages, as opposed to the exceptional levels [of] the past few years."
