Despite 2020 being a volatile year for the commercial and industrial property sector due to Covid-19 disruption, latest analysis by Colliers research shows that it was still one of the top years for sales activity on record.
In the latest Colliers monthly New Zealand research report, findings show the total value of national commercial and industrial property transactions totalled $8.936 billion in 2020, only short by some 12% of 2019’s total of $10.117 billion. The highest on record is $10.894 billion achieved in 2016.
Analysing data from CoreLogic, Colliers notes that the smaller than anticipated variance reflects the sharp rebound in investor sentiment and accompanying lift in market activity apparent over the closing quarter of 2020. This activity hasn’t stopped and has gained significant momentum in 2021.
Chris Dibble, head of research at Colliers notes that after a strong opening to 2020, sales activity unsurprisingly declined sharply in the June quarter as New Zealand entered its COVID-19 enforced lockdown.
“However, fast forward to the second half of 2020 and that was all about to change. Investor sentiment was buoyed by better economic conditions and a low interest rate environment which created the perfect positive storm.
“By the fourth quarter of 2020, the market was full steam ahead. The total value of commercial and industrial property transactions reached $3.222 billion in the last quarter of 2020, the highest fourth quarter figure recorded since 2015.”
“The opening quarter of 2021 has reached a provisional total sales value of $1.731 billion. While slightly behind the Q1 2020 figure of $1.832 billion, the gap will reduce due to data reporting lags. However, 1Q 2021 sales values have already exceeded those recorded in the opening quarter of 2019,” says Dibble.
While the total number of sales recorded in 2020 was around 30% under the 2019 figure due to lockdowns, sales data for 1Q2021 show the market has rebounded strongly.
“With almost 1,000 commercial and industrial properties sold in the first quarter of 2021, this is already on par with 2019 data records, and given the data lags in reporting, will potentially prove to be a record breaker once the data is finalised,” says Dibble.
Ian Little, associate director of research at Colliers notes the demand for defensive assets has driven high levels of sales activity within the industrial sector.
“Over 2020 the combined value of transactions reached $4.35 billion, accounting for almost half of all commercial and industrial property sales. The annual transaction count of 1,700 comprised 54.4% of all sales.
“These results were achieved due to sales activity that accelerated in the final quarter of 2020 with $1.777 billion of sales transacting, 38% ahead of the same quarter in 2020.
“Momentum has carried through to 2021 with the value of sales likely to set a new record for the first quarter of a year when complete data is available.
“Office market indicators moved in opposite directions over 2020. Total sales value of $1.142 billion was up $250 million on 2019’s total. The total number of transactions, however, declined by approximately a third to 360.
“In the first quarter of 2021, there have been 124 sales, providing $263.7 million in total sales. This is down on the first quarter of all but one year since 2015.
“Quarterly sales values are volatile as they are heavily influenced by the timing of large-scale assets sales,” says Little.
The retail sector witnessed a decline in both the total value and volume of sales in 2020 compared with 2019, the report showed.
Little says: “The combined value of 2020 sales totalled $1.473 billion, down from the 2019 total of $2.044 billion. The 2020 transaction count of 752 was down from the 1,331 recorded in 2019.
“The early part of 2021, however, has seen a rebound in activity. Just over 260 sales were recorded in the first quarter of the year, up on the 2019 total of 185.
“The overall figures though obscure the fact that investor appetite for some classes of retail assets remains strong, large format retail in particular.
“However, we are starting to notice broader levels of enquiry and appetite for other retail sub-sectors, which will likely grow further over 2021,” says Little.
When commenting on the outlook for the commercial and industrial sector, Dibble says: “Commercial and industrial property sales activity is likely to remain strong over 2021, and new record sales will likely be achieved.
“However, there are some key features of the market that will need to be carefully considered as time passes.
“March quarter GDP figures provided further evidence that New Zealand’s economy continues to outperform expectations. While this is a positive, increasing discussions on rising inflation, and that interest rates have potentially reached their cyclical low, will likely see some investors act more cautiously.
“However, increases in interest rates will likely be incremental, suggesting a low interest rate environment for an extended period that will buoy investor activity.
“A continuation in rising construction and labour costs, along with rises in land values, will also likely drive investor sentiment.
“Further, the ramping up of vaccination programmes, locally and internationally, will enable a progressive relaxation of border restrictions, facilitating greater international involvement in the market.
“While defensive assets such as industrial and large format retail properties will remain popular, increased competition and growing confidence will likely encourage an increase in the allocation of funds to a wider range of assets,” says Dibble.