Investors are returning to the commercial property market based on the steady uptick in activity in the first half of the year, according to Colliers.
A broad combination of factors such as the fall of the Official Cash Rate, term deposits maturing, and access to cheaper debt has contributed to improved market conditions.
David Burley, Auckland Director of Investment Sales at Colliers, says one notable type of buyer that has returned to the market of late is the add-value investor.
“These are buyers searching for opportunities where they can spend money and drive greater tenant interest in their assets. We saw renewed market activity in the industrial space in the earlier part of the year and this is flowing through to the commercial sector in other areas of Auckland,” Burley says.
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“The cost of borrowing and rising construction expenses contributed to these buyers sitting on the sidelines last year and for much of 2023 but the conditions have changed and they are seeking strategic purchasing opportunities again.”
With the Reserve Bank of New Zealand signalling we may be near the end of the interest rate cutting cycle, Burley says investors are now able to price their lending accordingly.
The drop in interest rates means investors are now paying significantly less in borrowing costs compared to what they were 12 months ago.
A recent deal that exemplifies the return of add-value investors to the market is the sale of the office building at 181 Grafton Road on the fringe of Auckland’s CBD.
“The buyer saw an opportunity to potentially reposition this building in the future and was willing to make an investment in it. This is a property with considerable long-term upside and the vendor was pleased with the outcome as they met the market with their price expectations.”
While investment activity in the heart of the CBD remains subdued due to ongoing construction and accessibility issues, Burley says he expects that to improve over time.
“With parts of Albert Street freed up and the new build developed by Mansons TCLM now open, that area of the CBD is becoming more desirable.”
Certain parts of the retail sector have continued to provide appeal for buyers with well-positioned assets standing out.
A recent example of this was the sale of 49A Cavendish Drive in Manukau, a trade retail property that was offered to the market for the first time in 30 years. The scarcity of the offering meant it drew strong interest.
Burley says large format retail, supermarkets, and quick-service restaurants all have their own investment fundamentals that buyers covet leading them to perform well, while traditional high street retail is going through a tough period.
“As we move into the second half of the year and passive investors continue to see their term deposits mature, we believe there will be further activity in the investment market as people look for a new home for their capital with term deposit rates falling.
“Yields are tracking back down, reflecting the confidence we saw in the market prior to 2023.”
- Supplied by Colliers
