Auckland enters period of sustained growth in a game changing year for most regions

Photo / Dean Purcell

This year has been "a game changer" for the commercial property market, says John Church, general manager commercial and industrial for Bayleys Real Estate.

"It has been a year of significant advancement in most areas of the country, although some are further ahead in the cycle than others," Church says in his introduction to Bayleys' final Total Property portfolio magazine for 2013.

"Auckland has clearly moved beyond the recovery stage and has now entered into what most observers believe will be a sustained period of considerable growth. In contrast, the Wellington industrial market has only just turned the corner after six years of vacancy increases.

"Things are also still a bit patchy in the provinces. Bursts of activity are tending to be followed by lulls, as was the case in the early stages of the Auckland recovery."

He notes these significant trends in the market:

• Big corporates are back in the leasing market. "It's generally taken a hefty upfront inducement, but large companies are once again committing to significant amounts of space on long-term leases," he says. "This is also helping create more offerings at the high value end of the investment market as evidenced by Bayleys' sale of Manson TCLM's GHD Building for $63 million."

• Transaction activity levels are strong with sales volumes for the first half of this year at their highest level post the global financial crisis. Values are also well up with a noticeable pick-up in high value transactions as well as sales in the "middle" market of $5 million to $10 million.

• High volumes of vacant building sales are continuing throughout the country. This has been partly driven by a shortage of investment stock for sale with more investors being prepared to take a punt on vacant or semi-vacant buildings in a rising market, Church says. "The other part of it is the continuation of low interest rates which makes it attractive for owner-occupiers to borrow and buy."

• Holding-to-firming yields. Yields have gone below 5 per cent in a few instances for smaller, strongly located retail investment properties in Auckland this year and beat previous yield benchmarks in places such as Rotorua and Palmerston North. "This is all about not enough supply of really good property and too much demand for what limited supply there is," says Church. "We don't see that changing any time soon although it will be interesting to see what happens to yields when predicted interest rate rises occur next year.

"The laws of mathematics suggest yields should go up - but sometimes the market decides otherwise."

• An increase in development activity. There continues to be a steady pick-up in new projects, not just in Auckland but also in centres such as Hamilton, Napier/Hastings, Christchurch and Queenstown. This is largely being led by established and well-capitalised developers.

Church concludes some obvious influences are already at play which will carry over into 2014.

"There's clearly not enough office development being undertaken in Auckland to cope with demand and finding new space for office tenants will be the biggest challenge the real estate industry faces for the next year. Outside of Auckland, a big talking point is what will happen with all that cash that is flowing into rural communities as a result of the record dairy payout and what impact that will have on the commercial property market."