Advice from Bayley's top award winner

City fringe precincts like Newmarket and Parnell are tops with tenants seeking more cost-effective solutions. Photo / Supplied

Alan Haydock, who heads Bayleys' Auckland City & Fringe team, took out the top award for the most commercial property commission revenue that was generated nationally in another record year for the agency.

Commercial sales and leasing revenue was up 15 per cent nationally and over 20 per cent in Auckland in Bayleys' 2018/19 financial year.

Haydock says that 2019 is an opportune time for investors to consider realising some capital gain on prime assets they acquired earlier in the cycle. The continued high demand for A-grade office is being significantly constrained by a limited supply, resulting in record low yields for this asset class.

"Consider reinvesting part of the proceeds into assets with greater add-value opportunities," he recommends.

"It is important to evaluate potential deals with caution and seek trusted advice in this rapidly changing market. It has become increasingly challenging for investors to find assets with justifiable returns amid the rising volatility. While it's an opportune time to purchase well in emerging areas there's also a higher risk of buying badly as investors chase income streams at the top of the cycle."

Haydock says our reasonably resilient economy and the recent downward movement in the Official Cash Rate are supporting New Zealand's commercial property market at present.

Alan Haydock, Bayleys. Photo / Supplied

"However, property returns are expected to soften due to decelerating capital growth as yield compression eases. Future returns will more likely be driven by rental income, particularly in the Auckland CBD where vacancy rates are at a record low and there are high pre-commitments for new office developments coming on stream over the next year or so."

He says tenants are increasingly looking to emerging areas on the fringe of the CBD for more cost effective solutions that also appeal to skilled millennial employees, who are hotly contested for, in the low unemployment environment.

"Tenants want high quality, flexible, modern or character spaces near great amenities and transport hubs in up-and-coming fringe areas. This provides an opportunity for landlords and developers to enhance outmoded assets as well as adding common areas like co-working spaces, cafes and gyms to create that sought after community feel."

The changing market opens up opportunities for investors willing to move up the 'risk curve' and improve returns by rebalancing their portfolio towards the city fringe and to assets with greater upside potential, Haydock says. This shift is already occurring as evidenced by the increased ratio of fringe sales that he and his team have concluded over the past year.

"Properties with a flexible Mixed Use zoning are particularly sought after because of the wider range of future commercial and/or residential development options they provide," says Haydock. "We foresee continued strong demand for these assets which provide diversified income streams."

Another noticeable trend is asset repositioning. "Astute investors are taking advantage of changing demographics and technology innovation to convert underperforming assets to more valuable uses. These include senior living, healthcare, student accommodation and residential rental accommodation, aimed at the increasing number of Aucklanders who can't afford to buy into the local housing market."