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The number and value of settled sales of commercial property over $2m for the year to September in the three main centres is around $1.5 billion, in over 200 transactions. While the market is clearly active, it is less than half the activity, whether measured by number or value of transactions, in the year to September 2007. From our knowledge of recent transactions we expect a strong finish to the year as these deals settle.

The chart to the right illustrates that Christchurch has bucked the trend, with a greater number and a greater value of significant sales occurring in the 12 months to September 2010 than in the previous year. However sales activity is effectively on hold in the commercial sector as well as the more reported residential sector. The same factors are at work – concerns over insurance, safety, acceptability of buildings to tenants, and costs of repair. This last factor may be the easiest to measure, but it may also be the most difficult to overcome. A requirement that older buildings are strengthened to comply with a level of 67% of the current Building Code for new builds may be prudent, but it is expensive, The logical consequence for tenanted buildings is that rents will have to increase hugely for investors to maintain the returns they have been used to, or landlords will have to accept lower returns.

In most parts of Christchurch’s commercial market, rents are low and have been relatively static over many years. It would appear that businesses can’t afford high rents, which has prevented much in the way of new building in recent years. That simple financial equation has resulted in a CBD office and retail stock that is older than say, in Auckland, where higher rents and capital values have allowed more development to occur. Owners of newer well built real estate in Canterbury are likely to be the beneficiaries.

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