Oyster chief executive Mark Schiele is bullish about Auckland commercial property.
The commercial property and funds manager has around $1.7 billion under management and says Oyster has a strong appetite at the moment to invest more in the city.
Schiele says in the medium to long term market conditions and demand in Auckland remain healthy.
That will continue despite any short term problems. Official and industrial property are the main growth areas although Schiele says while retail is out of favour with global property investors, there are still opportunities in Auckland.
He says the city has many positives driving demand over the next 20 years: "It's the gateway city to New Zealand. It has the largest population and that population has been growing year-on-year. It's been growing at about the size of a city like Nelson for the last 10 years. It sits on an isthmus so you can't go further east or west to subdivide or build more property, there's water there.
"The density around the centre means that every square metre continues to get more and more valuable as more people come to the city. That population increase means more and more businesses want to locate here.
"Tourism may drop in the short term with the coronavirus, but in the medium term more tourists will come to Auckland. These are the fundamentals that drive us and drive the commercial property market."
The narrowness of the CBD makes it desirable, yet Schiele says people want to be able to live near where they work. That's often not an option in the centre. While Auckland's public transport continues to improve, there is still a need for commercial property closer to where people live. That's why Oyster also invests in office parks on the main arterial routes around the city and close to railway stations. He says these are also desirable.
There are other ways the commercial property sector is changing in line with work and shopping trends.
Schiele points to the move to agile working where people are no longer allocated their own desk.
Employees may not come into the office every day. This means companies make smarter use of their space. Part of this trend is the rise of co-working spaces. Oyster is active in this area, it leases the top floor of its Cider building in Ponsonby to Biz Dojo.
Cider is a high profile mixed use development that remains in demand. It was built by Progressive Enterprises which leases the Countdown supermarket on the ground floor. Tenants also include Stuff and ACG. Oyster's Auckland portfolio also includes the Millennium Centre and Central Park Corporate Centre in the Greenlane area, C-Drive in Albany and Dress-Smart in Onehunga.
Auckland's demand for office space remains strong. The changing nature of shopping has already had an impact on retail property. Schiele says investors, especially overseas investors are less optimistic.
He says the reasons are clear; "Internet sales and the rise of omni-channel marketing. Retailers want showcase stores. They don't want to carry loss-making distribution channels throughout the region.
Oyster has a high proportion in retail but Schiele recognises the sector is changing. "Overseas investors are coming in wanting to buy commercial real estate and are more averse to retail. This creates an opportunity for us. We know retail. We've developed retail for the last 25 years," he explains.
"We have the same views as everyone else on certain kinds of retail property. Catchment dominant and experiential retail interests us. Experiential is where you have not only fashion stores but food and entertainment. You can also have civic amenities. This might even extend to office and residential. We want sites on larger land tracts with good connections to road networks, especially main highways and state highways.
Mark Schiele. Photo / Supplied
"All these things are important. In a market like today, we're not buying retail property left, right and centre, but we do see value in certain assets."
Schiele says customers want catchment dominant, where a retail location dominates the area it serves, and experiential centres. That's both the tenants and the people they serve. Catchment dominant centres are now popping up at the intersection of state highways or near public transport hubs.
"People want to be able to experience different things. It's a leisure activity, not needs must shopping. They can do their needs must shopping online.
"Click and collect is an interesting trend. It still requires a brick and mortar face. It's something we are seeing at more and more shopping centres."
High demand for commercial and industrial property means prices have grown in recent years. Schiele says this, in turn, means there is less property coming on to the market as the owners are holding it.
He says; "They see less need to move on. This is particularly the case in Auckland where there are a lack of alternatives. It's also driven by occupier demand. Tenants in good office buildings, industrial complexes and in appropriate retail destinations continue to want to be there and that drives rents."
Schiele says international property investors with an Asia-Pacific focus are not investing in mainland China or other Asian areas because of short-term market shocks. This means Australia and New Zealand have become more important.
He notes industrial property is difficult to buy at the moment. "We have industrial in our portfolio.
Rather than wait until we could buy significant scale in industrial, we started an industrial fund last year and seeded it with two small assets. The aim is to continue to buy industrial assets. We will do that in the coming years. It allows us to build an industrial exposure. The same rules about good connectivity apply. Industrial is all about logistics and moving goods; stuff needs to come in, then go out."
Schiele says syndicated property investments are popular now because it allows people who might not otherwise have an opportunity to invest in property to enter the market. There are risks, but he says this is well priced at the moment.
"Proportionate ownership and fund structures allow investors like you and I to invest in something we couldn't hope to invest in ourselves, but we can participate in the benefits.
"Typically that means a yield that is higher than you might get from a bank, along with capital growth for well-located properties."
