John Scobie, a valuation specialist at Colliers International in Queenstown, is bullish yet realistic in his annual market overview of the southern jewel.
“The infrastructure and capital investment in Queenstown over the last cycle has provided us with a solid platform and great future capacity for growth in both the permanent and visitor population.”
In the comprehensive report, Scobie predicts a residential lead recovery will begin in 2010, peaking in 2016 – a longer recovery phase than is customary because of the severity of the current downturn. Additionally, the different property classes will recover at varying rates.
Report highlights:
Commercial
The small number of commercial properties changing hands in central Queenstown is making it difficult to benchmark where values now lie. The only deals in the past 12 months had been in fringe locations, showing yields of 6%-7.5%.
But there has been some anecdotal evidence suggesting a softening of prime commercial property yields from their heights of 2007/2008, when they were among the lowest in New Zealand at around 4.5% - 5.5%.
Commercial property in the town centre continued to be tightly held, with the majority of property owners high net wealth individuals.
Rentals within the prime sector of the commercial market remained firm, primarily due to low vacancy and strong demand coming from new entrants underpinning the market.
Residential
Residential properties have been the least affected by the downturn with sales volumes tracking at levels approximately 40%-50% below the peak of the market 2003-2007. Values have dropped by 10%-15%. Sales volumes in the first months of 2009 are up on last year, which may indicate that the market is starting to stabilise. The upper end of the market has been busier. In the six months to June 2009 there have been 28 residential sales of more than $1 million compared with 36 for the whole of 2008.
Managed apartments
Managed apartments, as opposed to owner occupied or residential properties, have been hardest hit. A large number of these were bought in the hope of speculative capital gains. There is a wide variation in the market with secondary product now being heavily discounted. The majority of sales in this sector are ‘forced sales,’ which have created a market expectation well below previous sale price levels. Quality is still a key factor needed with location to ensure value sustainability and growth.
Vacant development land
Vacant development land has also been heavily discounted by the market, with some forced sale values at well below previous levels. The difficulty with finding funding for this asset class is compounding the lack of ‘saleability.’
Large scale developments
Millbrook Resort remains one of the established performers. It enjoys low levels of debt on its development land, having bought most of it in the late 90s at rural prices. This has allowed them to avoid all need for any second mortgage or mezzanine funding, which has been the downfall of other large scale developments. Re-sales volume at Millbrook is up on previous years, producing a new record for the resort of $20.2 million for the first nine months of its financial year.
On completion, Kawarau Falls Station will comprise 14 buildings including three international five star hotels. Stage one, featuring six buildings, is due to be finished this summer. The second stage is scheduled to begin late this year but it is still surrounded in uncertainty, pending an announcement from receivers.
Five of 18 prime lifestyle lots at Jacks Point have sold this year with one substantial home already finished and another two under construction. The most recent sale of one of these lifestyle lots was at $1.55 million. Jacks Point is one of the largest such residential projects in the country with a potential population capacity of about 7800 people.
Remarkables Park Development comprises 150ha of land, including 15has of completed development. It is being developed in seven major precincts with comprehensive work already completed in two. Further work in the town centre is expected to be finished mid 2010, consisting of 1300m2 of retail space.
Tourism property/accommodation
2009/10 will be a year of continued change and consolidation with the hotel sector most affected showing a 5-10% decrease in combined room rates and occupancy levels. Our projects for the medium to long term (five years plus) are still very positive. Queenstown will continue to be a cyclical tourist market, albeit on a strong upward trend.
For further information, please contact:
John Scobie, Colliers International,
03 441 0778, 0275 648843, john.scobie@colliers.com
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