KEY POINTS:
Prime retail commercial property prices are holding firm as there is more investment capital than ever throughout New Zealand, says Peter Herdson, sales director for Colliers International.
Announcing the launch of Colliers' latest national portfolio, containing 42 properties worth $300 million, Herdson says total returns from top-quality retail properties have climbed steadily, so those that come on to the market don't sit around for long
"Slower growth in consumer spending is not dampening demand for prime retail properties to fill investors' portfolios," says Herdson, who cites figures from the latest Property Council investment performance index, showing a considerable resurgence in retail investment performance.
"Investors collected a 24.77 per cent total return for their retail property last year, compared with annualised returns over the past three years of 19.73 per cent.
"The bulk retail category shows a similar renaissance at 23.84 per cent last year compared with 16.02 per cent annualised over the past three years and the majority of the return came from capital growth."
Herdson says two major investments in Colliers International's latest portfolio will attract plenty of retail investor interest: the Warehouse's red sheds in Blenheim Rd, Christchurch, and in Church St, Palmerston North. Both properties were built in 2005 and are being offered with new 10-year leases and five three-year rights of renewal.
The two Red Sheds are for sale by private treaty, closing on April 3.
The Warehouse's Blenheim Rd property in Christchurch includes 3754sq m of vacant development land. The 2ha site has a 9289sq m red shed that includes 7295sq m of main retail, a 275sq m garden centre, 653sq m stock room, 614sq m goods handling area, 452sq m mezzanine and associated parking. The Warehouse's new lease includes rent of $980,000 a year.
The 9985sq m Palmerston North red shed has 8591sq m of retail area, a 427sq m garden centre, 450sq m stock room, 517sq m mezzanine and 262 car parks. The Warehouse's lease will include rent of $1.2 million a year.
The property had previously been part of the city's railway station. When the station was moved in the 1960s, there was a land swap between the government and Palmerston North City Council.
The council ended up with several large blocks of central city land and resisted numerous approaches from land developers over several decades. In 2003, a newly elected council agreed to sell the land, making way for The Warehouse development.
Colliers sales broker John Green says the site is recognised as one of the best large-format retailing sites in Palmerston North. It fronts on to two main arterial routes with high traffic volumes passing. Other major retailers are nearby, including New World, Pioneer Shopping Centre and Church Street Super Centre.
Green says the two properties are as good as it gets for large retail investors. The Warehouse last sold properties three to four years ago and they are always highly sought after. They have come on to a changing market that is still short of quality retail investments with large single tenants.
Also included in the portfolio are CBD office buildings, industrial properties and lifestyle holdings.
Herdson says the CBD investment sales market has been robust, although it is now expected to soften. Buildings have sold at low yields, as a result of unrelenting interest from institutions, private syndicates and offshore investment funds, particularly from Europe and Australia.
A development in Quay Park, Auckland, sold to a European fund, set a new benchmark yield of 6.43 per cent. Herdson says sub-7 per cent yields were common last year.
Most of the listed property companies hamstrung by weak share prices are likely to re-enter the market but be more selective in their acquisitions. Private investors will be tempted to invest in "defensive" property stocks, or directly in "bricks and mortar".
He says the yield ranges show stability at the top end but softening rates for the lower-grade property in the less popular precincts.
Investors, not just developers, will find borrowing more expensive this year and will need higher returns to compensate when considering purchases.
The outlook for yield will reflect the re-rating of risk. Highest-quality, low-risk property will retain its value, while secondary higher-risk property will not. Capital appreciation is likely to arise from genuine rental growth, not by yield compression.
BNZ chief economist Tony Alexander spoke at the opening of Colliers International's new South Auckland premises and said New Zealand was insulated from a full-blown recession in many ways.
These included easing fiscal policy, the boom in the dairy industry, a tight labour market, infrastructure spending catch-up and growth in Australia and China.
Alexander said because of several resource shortages, inflationary pressures would remain.
Wage growth was likely to be strong.
Alexander believes inflation worries will prevent the Reserve Bank from easing monetary policy until December at the earliest.
Fixed interest rates were likely to slowly decline as the year went by. While the Kiwi dollar would be highly volatile in line with fluctuations in world risk tolerance, Alexander said it was likely to remain well-supported by continued strong commodity prices and this country's high interest rates.
Interest rates were being slashed in the United States and cut in Britain. Finance costs would remain firm, so companies should beware of over-reliance on floating rate funding.
He saw the dollar as settling to be structurally higher over the long term and warned exporters to seek natural hedging and focus on boosting productivity.
Alexander said businesses should be considering their "carbon footprint and potential mitigation measures".
