The Wellington commercial property market looks to be on a roll again this year.
Favourable market conditions that fuelled a very buoyant year for Wellington's commercial and industrial property sector in 2015 look set to continue this year, says Mark Hourigan, managing director of Bayleys Capital Commercial.
Writing in Bayleys latest Greater Wellington magazine Hourigan says that last year was the best year that the Wellington commercial and industrial property sector has experienced since the Global Financial Crisis knocked the stuffing out of the market way back in 2008.
"Sales and leasing activity was well up in most sectors of the market and across all value ranges, with a significant uplift evident in the last six months of the year in particular." he says.
"Wellington's recovery has lagged behind Auckland's but in some ways this has worked to our advantage. Much of Auckland's available supply of big ticket investment offerings was exhausted in 2014 which resulted in both local and offshore large-scale investors shifting their focus to Wellington. This has led to a significant number of high value sales.
"And, while yields have firmed in Wellington by close to one percentage point as a result of increased competition for investment properties, they are still significantly higher than in Auckland where 11 out of 14 tenanted offerings sold at yields of between 4.2 per cent and 6 per cent at Bayleys' Total Property auction in December.
"Given that Wellington investment properties are still generally selling at yields of over 7 per cent and the fact that we are at an earlier stage in the current market recovery cycle than Auckland, it's not hard to see why investors are being attracted here."
Hourigan says increased interest from investors from outside the region has been particularly noticeable.
"Recent transactions concluded by Bayleys Wellington have included sales to investors from America, Australia, Asia and Europe as well as to Aucklanders who consider their own market to be overheated. All these factors mean we are now getting multiple offers on good quality investment offerings."
Leasing across all sectors of the Wellington commercial and industrial property market has continued to gather momentum as well while businesses buying premises for their own occupation also remain very active - competing with tenants for empty space.
"The combined effect of this is steadily pushing vacancy rates lower," says Hourigan.
The latest survey of the Wellington industrial market shows vacancies have fallen for the third successive year. The overall vacancy rate now sits at 6.25 percent - down from a peak of 7.5 per cent in 2012.
The Wellington office leasing and development market is benefiting from thriving IT and film sectors, improving business sentiment and service sector employment growth plus continuing tenancy centralisation from government agencies.
Meanwhile the latest annual retail vacancy survey by Bayleys Research shows reducing vacancies in the core Wellington CBD, Cuba St and Courtenay Place precincts.
Outside of the central city, there is plenty of activity occurring in the bulk retail leasing market with Wellington Airport continuing to attract tenants to its retail park and the western end of Petone undergoing a transformation from an industrial precinct into a bulk retail destination.
"All this activity means there are now considerably fewer options to present to tenants than was the case a year ago," Hourigan says. "There is also evidence of rental growth with reports of a new benchmark rental figure of $3000 per sq m for prime retail space on Lambton Quay. We are expecting the supply of vacant premises to become even tighter in 2016 which, while not good news for businesses looking for accommodation, will be music to the ears of landlords."
Hourigan says the Wellington economy underperformed the national economy in 2015 but economic consultancy Infometrics considers Wellington City's service-oriented economy is likely to perform better than New Zealand as a whole over the coming year.
"Wellington's economic growth has been somewhat constrained in recent years by tight control of central government spending. However, Infometrics believes the improvement in the government accounts is likely to ease restraints on public sector employment and spending which will have obvious benefits for Wellington.
"Commercial construction is also at high levels in Wellington City, with non-residential building consents up 25 per cent compared with 15 per cent nationally in the September 2015 year. A strong level of building activity is evident in the CBD and this will continue in 2016 on the back of government tenancy repositioning work, continued expansion by the education sector, in particular Victoria University, along with seismic strengthening.
"The earthquake hysteria that was such a dominant feature of the market post Christchurch's big shakes has dissipated, with most owners having either done the work needed to bring their buildings up to scratch or in the process of doing so."
Work on Wellington's biggest construction project, the $2.4 billion Northern Corridor upgrade of State Highway One and connecting roads will also gather momentum this year.
"Huge infrastructure projects like this have real spin-off benefits for owners of industrial and commercial properties because they create increased demand for business premises," Hourigan says.
"With the Reserve Bank indicating late last year that historically low interest rates are likely to stay around current levels for another three years, the commercial property market looks set for another strong year in 2016. Given Wellington's more conservative nature, we are not expecting the frenzy of activity that has been a feature of the Auckland market. However, we are expecting a continuation of the current buoyant conditions."