Commercial properties between $2m and $5m made up the most popular section of the plus-$2m market among buyers in 2012, accounting for over half of all transactions.
The popularity of properties in this value bracket is a key trend revealed in new data on settled office, industrial, retail and mixed property sales in 2012 analysed by Colliers International Research.
Consistent with trends seen in previous years, the New Zealand market also remains dominated by private purchasers, with approximately two thirds of purchasers in 2012 classified as private investors, said Colliers’ Auckland research manager Chris Dibble.
“We expect private investors’ appetite for commercial property to remain strong this year. These investors are likely to focus on adding quality properties with good tenant covenant, lease terms and seismic strength to already growing portfolios.”
The high level of interest in commercial property among individual investors in New Zealand is also elevating the current popularity of property syndications, said Dibble. “Investors who are chasing yield and searching for more affordable ways to enter the market than purchasing an entire building are key candidates, and will often be offered much higher returns than available on cash in the bank, he said.
Number of sales down, average value up
The data also show the number of commercial property transactions over $2m reached historically low levels last year, while the average value of transactions climbed to one of the highest experienced since before the global financial crisis.
There was a “whopping” 85% increase in the average sale price for commercial properties over $2m last year, from $5.5m in 2011 to $10.2m in 2012.
At the same time, the number of commercial properties sold over $2m dropped by 22%, from 341 in 2011 to 266 in 2012, Dibble said.
“A few key trends in the market resulted in the number of transactions falling and the average value increasing last year. There were fewer transactions because people are holding on to their commercial property investments, which offer attractive returns at the moment when compared with returns available on cash. Commercial property has also typically shown less volatility than shares over the past few years, which is appealing to investors in uncertain economic times.”
A lack of available quality investment stock in many areas of the commercial property market has also contributed to the reduced number of properties changing hands, he said. “The data support well-known anecdotal evidence in the market that well-priced, quality investment stock is hard to come by. However, when quality stock is brought to market with a comprehensive marketing campaign, it will typically sell – and sell well.”
Activity in top end of the market picks up
Despite the overall drop in sales activity, a pick-up in the number of very large commercial properties being sold was behind the increase in average sale values for properties over $2m last year. “Several very high-value transactions last year contributed to average sales rising to one of the highest levels experienced since 2007,” said Dibble.
The five largest commercial property asset sales by value in New Zealand in 2012, all of which Colliers International was involved in, were:
• ASB Tower, 135 Albert St ($104m)
• Downtown Shopping Centre, 11 Customs St West ($90m)
• The Warehouse North Island Distribution Centre, 13 Bolderwood Pl, Wiri ($90m)
• Shore City Mall, 52-56 Anzac St, Takapuna ($83.5m)
• Pakuranga Mall, Ti Rakau Dr ($81.7m).
Andrew Reed, corporate and institutional sales broker at Colliers International, said: “A number of buyers, including government, listed property trusts, high net worth individuals and international investors were active in the top end of the market last year, resulting in a pick-up in sales of large assets after several years of relative inactivity.”
Buyers’ rationales for purchasing large, strategic commercial property assets varied, with passive investment, add-value and potential development opportunities among the factors considered, Reed said.
The total value of all office, retail and industrial property sales in 2012 was $2.71 billion, compared with $1.87 billion in 2011.
Auckland remains the most active commercial property market in New Zealand, which is a reflection of Auckland’s size in terms of economic output and population, Dibble said.
“Given the slow, but rising momentum in the economy, we forecast another strong year of sales activity in the $2 million-plus sector of the market this year, which will continue to be concentrated in Auckland.”
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