A stellar 2019 marked the end of an outstanding decade in the New Zealand commercial and industrial property market. We witnessed many record-breaking deals and a high level of confidence that puts us in a positive position to start the next decade.
It is perhaps two standout office deals transacted in 2019 that best showcase the market’s strength and the positivity for 2020.
The sales of 155 Fanshawe Street ($247 million) and Chorus House ($144.5m) in Auckland showed the ongoing popularity of flagship office properties and strong occupier fundamentals. Both properties sold to offshore purchasers with yields in the low 5 per cent range.
Not to be outdone, the industrial sector is riding on a high with the $70m-plus Visy manufacturing and distribution facility sold by our Highbrook and Hamilton offices for a sub-5 per cent yield. This deal has arguably re-rated price expectations and demonstrated the long-term positivity and strength of the sector.
Despite testing conditions, excellent opportunities in the retail sector keep emerging across the country. An exemplar is the sale of the Hoyts EntX complex in Christchurch that sold for $48.8m and a yield of 6.5 per cent.
In Auckland, the full opening of Commercial Bay’s three-level retail precinct in the first half of 2020 will be a major milestone. The flagship development on the water’s edge is tipped to redefine retail in the CBD. Demand for high quality retail space has grown significantly in the past few years given the explosion in the residential, worker and visitor population. There will be something for everyone with more than 100 retailers split between 30 per cent for major retailers, 45 per cent for speciality retail and 25 per cent for food and beverage.
Another standout in 2019 was New Zealand’s $42 billion sovereign wealth fund (New Zealand Super Fund) entering the hotel sector by co-investing in a portfolio of hotels owned by the Russell Group and Lockwood Property Group. This $300m investment represents the single largest hotel transaction in New Zealand history. The recent expansion announced in December 2019 with the purchase of a 203-room Holiday Inn in Rotorua signals there could be more to come in 2020.
The number of financial, economic and legislative disruptions the property sector has dealt with confidently in 2019 is testament to the sector’s resilience. Global politics, slower economic growth and a New Zealand election in 2020 will likely test the sector’s resilience again. Past experience and positive leading economic indicators suggest we can be cautiously confident in the outlook. There is a lot to look forward to.
Solid employment and low interest rates will continue to be key positive influences on the market. The OCR is expected to remain the same or lower in 2020, but the possibility of higher lending margins in 2020 signalled by the Reserve Bank and major banks could entice owners to sell and take advantage of the strong gains made in recent years. It may also lead to a number of alternative funding options. Both features could boost activity in 2020.
Read more insights from our experts:
2020 Commercial Property Review - New Zealand office market
2020 Commercial Property Review - New Zealand industrial market
2020 Commercial Property Review - New Zealand retail market