KEY POINTS:
Bayleys Real Estate is increasing its focus on offshore marketing as a result of a thinning supply of local buyers for higher value properties and is taking a portfolio of big commercial, industrial, tourism buildings to Asia, the Middle East and Europe over the next few months with several large land holdings.
Bayleys executive director David Bayley says sales at the top end of the market have slowed in comparison with the last few years mainly because of a fall off in institutional investment activity.
"The feedback we are getting from listed property trusts and other large property fund managers is that they are likely to be net sellers in the next 12 months - that is, they will be selling more than they are buying - and we don't expect most of them will be buying much at all."
As a consequence, Bayleys is focusing more attention on promoting properties internationally, with a particular focus on Hong Kong, Singapore, Shanghai, Dubai and Europe.
The agency has put together an Investment New Zealand portfolio of commercial, industrial, tourism and large-scale lifestyle properties that it will be promoting in conjunction with its international affiliate Cushman & Wakefield as well as through personal representation.
Bayleys' Auckland commercial broker, Richard White, is also compiling a portfolio of substantial land holdings to market offshore.
David Bayley says the top end of the commercial market hasn't dried up completely and there have been four Auckland CBD sales over $25 million this year, three of them to parties with offshore interests.
He has been involved in two of these sales, at a combined value of close to $70 million.
One was a 3330sq m block of land and buildings on a prime Queen St corner site opposite Aotea Square, that was sold in conjunction with Geoff Graham and Bill Fenton of Bayleys Auckland office.
An Auckland private investment company with Korean connections has bought the site which contains office and car parking buildings and a chapel and community centre which the vendor, Methodist Mission Northern, will lease back until July 2010.
David Bayley's other sale, in conjunction with Jack Downer, was of the 20-level former Simpson Grierson building at 92 Albert St, built as part of the Finance Plaza development in the mid-1980s.
The 11,373sq m building has been completely refurbished to A-grade office standard and to a 4-star NZ Green Building Council rating by MCS Property Group headed by Andrea Steffensen.
Telecom occupies close to 40 per cent of the building.
This property was bought by a European-based private investment syndicate.
He says the syndicate manager has bought together other syndicates of wealthy European investors to acquire a variety of substantial Auckland and Wellington CBD properties during the past five years.
Several have been bought through Bayleys with Bayleys Property Services managing the building on behalf of the offshore owners.
"They are familiar with and like doing business in New Zealand and are attracted by the income returns on commercial property here, which are higher than in many other countries," Bayley says. "These private investors take a long-term view of markets they are investing in and aren't too fazed by the current market turbulence.
"They don't have to contend with balance sheet considerations and the general negative investment sentiment among unit holders that is affecting the institutional sector."
David Bayley says most offshore interest at present is coming from wealthy individuals, private investment companies and syndicates, with institutional investors having to grapple with similar issues to their New Zealand counterparts.
He says he has noticed a rekindling of interest in New Zealand property on recent visits to Southeast Asia.
They don't seem to have been as affected as much by the current economic turmoil and the fallout from the credit crunch as some other parts of the world.
"We've been renewing contacts we've built up over nearly 20 years in Singapore and Hong Kong and we're also focusing quite a bit of attention on China which is now challenging the US as the world's powerhouse economy," says Bayley.
Southeast Asian investors largely drove the commercial and industrial property market recovery in New Zealand in the early 1990s, he said.
"They watch international markets and exchange rates very closely and generally move in when local buyers are moving out - they are classic counter-cyclical investors."
Bayleys' association with Southeast Asia dates back to the late 1980s when David Bayley said there were virtually no local buyers in the market.
"We basically jumped on planes with brief cases full of information on properties for sale and set about creating new markets for New Zealand property.
"My father [the late Graham Bayley] focused on Japan and the Middle East and [brother] John and I concentrated on Singapore and Hong Kong."
To assist them, the Bayleys employed James Chan, a multi-lingual graduate from Melbourne University. He went on to become one of Bayleys leading salespeople (he is Bayleys 2008 top national commercial salesperson), building up a substantial local and offshore database of Chinese clients.
The Japanese were the first to invest here in the late 1980s buying several Queen St buildings followed by buyers from Hong Kong and Singapore who made their move in the early 1990s when the market was at its lowest point.
They were principally attracted by double digit income yields which were running as high as 15 per cent and more for some office buildings. Bayley says there won't be a return to those sort of yields because the market fundamentals are a lot better with tight occupancy rates across all of the commercial and industrial sectors.
But there will definitely be some good buying opportunities as a result of the downturn and if the recent fall in the New Zealand dollar is sustained, "we are anticipating a significant pick-up in offshore interest, and out of Asia in particular".
Writing in Bayleys latest Total Property magazine, one of New Zealand's most seasoned property investors Sir Robert Jones says great deals can be done in times of economic and investment uncertainty with willing, co-operative vendors and company receivers.
"While the economic storm clouds are hovering, they'll rain gold for those investors poised to exploit the changed market.
"Any historic analysis of wealth accretion arising from asset investing shows that it is the counter-cyclical buyers who triumph. But they are few in number as such behaviour is contrary to the norm."
