Heightened investment activity looks set to propel the total value of commercial and industrial property sales in New Zealand past $12 billion in a year for the first time.
The final figures will be confirmed in the coming months but the industrial, office, and retail sectors experienced rising occupier and investor demand in 2021, spurred on by positive economic conditions that supported occupier fundamentals and transactional decision making.
While safe haven assets, particularly prime grade industrial, supermarket and large format retail premises, have continued to attract the highest levels of investor interest, improving sentiment has seen competition emerge for a broadening range of assets.
Ian Little, associate director of research at Colliers, says the industrial market again proved itself as the premier asset class.
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“The industrial sector was bolstered by a further strengthening of market fundamentals over the year.
"Occupier demand has increased, driven by growth across multiple sectors, while the ability to increase new supply remains constrained, a combination which has seen vacancy rates falling to historically low levels resulting in upward pressure being applied to rents,” Little says.
“Increased competition for assets is likely to see the annual total value of industrial sales top $6 billion for the first time.
“Confidence in the sector is clearly illustrated by results from Colliers’ latest investor sentiment survey, which shows the sector generating a net positive (optimists minus pessimists) rating of just under 69 per cent, the highest recorded since the inception of the survey.”
Auckland is the most active industrial market in the country accounting for approximately one third of sales over recent years.
There has also been significant interest in the Waikato, Bay of Plenty and Canterbury regions.
Sales activity in many markets has only been constrained by a limited number of properties being released to market.
Interest rates have begun to rise, with further increases signalled for 2022, which is likely to temper further value appreciation, particularly given the magnitude of growth rates apparent over the past two years.
The positive sectoral fundamentals, ongoing rental growth, and the competition for a limited number of prime assets available to purchase will, however, underpin investment demand at elevated levels.
The office sector is likely to account for around 20 per cent of 2021’s commercial and industrial sales based on sales evidence and 20 years of sales trends.
Thomas Smeed, research analyst at Colliers, says despite Covid-19-influenced changes to work practices, investors continue to show confidence in the office sector.
“Prime grade assets, when brought to market, have attracted high levels of competition resulting in yield compression,” Smeed says.
“The scale and higher value of office premises, particularly in main CBD markets means that the number of transactions within the sector lags behind that of the industrial and retail sectors, accounting for approximately 12 per cent of total transactions but generating 18 per cent of total sales values.
“Auckland continues to attract the largest share of investment activity, reflecting the higher proportion of large-scale assets which are located within the city.
"Investors, however, have also viewed the Wellington market favourably given the security provided by the large government presence, which underpins occupier demand.
"The Christchurch market, which offers a high proportion of high-quality assets, has also remained active.”
A wide range of purchaser types have been active in the market over 2021 with the listed property sector and syndicators particularly prominent.
While overseas buyers are present, their ability to transact remains constrained by border restrictions, which limits their ability to carry out inspections.
Activity within the retail property market rebounded in 2021 as investor sentiment improved.
The total value of sales reported to date in 2021 has already exceeded the totals recorded on an annual basis since 2016.
With the use of blanket lockdowns potentially being phased out due to New Zealand’s high vaccination levels, retailers will benefit from the removal of some of the operational uncertainty that they have faced paving the way for broader sectoral strength in 2022.
Investor activity over 2020 and 2021 has been heavily weighted towards the supermarket and large format retail sub-sectors given their high levels of resilience during the Covid-19 pandemic.
The total value of sales reported to date in the retail sector in 2021 sits just above $2.3 billion, exceeding both the $1.9 billion recorded in 2020 and 2019’s total of $2.1 billion.
The retail sector faces some headwinds in 2022 with shifts in consumer confidence levels and spending activity in a higher inflation and rising interest rate environment likely to present some challenges.
However, there will be support from the continuation of a strongly performing economy, high levels of employment, and the likely relaxation of border restrictions.
- Article supplied by Colliers
