The latest announcement from the Reserve Bank of New Zealand that there will be no increase to the Official Cash Rate (OCR) suggests we may have reached the top of the interest rate cycle, and activity in the commercial and industrial property markets will rise in the second half of the year.
Confirmation from the Monetary Policy Committee on Wednesday of no further rises to the OCR, leaving it at 5.5 per cent, will likely have been warmly received by vendors and purchasers alike, following a slow start to 2023.
Ian Little, Associate Director of Research at Colliers, says the influence of interest rate rises on investor sentiment and sales activity within the commercial and industrial property sector is inescapable.
“The historically low interest rates in place over 2021 and early 2022, combined with accommodative access to finance, resulted in heightened competition for assets, driving the total value of commercial and industrial property sales to $13.4 billion in the year ending March 2022,” Little says.
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“The subsequent rapid rises in interest rates in response to a surge in inflation, has seen investors adopt a cautious approach given the uncertainty around where finance rates would peak leading to a provisional sales figure of $5.8 billion for the year ending March 2023.”
Little says the stabilisation of interest rates and the expectation of future decreases are likely to underpin an increase in investor confidence and an upward trend in transactional activity.
“Looking at the prospects for the remainder of 2023, it is likely that activity will increase from the levels witnessed in the first quarter.
“Over the last decade, first-quarter sales have comprised a smaller proportion of the annual total than the other quarters every year, except for 2022. Sales in the first three months of the year have generated an average of 16.5 per cent of annual sales by value.”
The impact of the interest rate cycle on sales activity is not limited to the commercial and industrial sector with recent trends being mirrored within the residential market.
“Real Estate Institute of New Zealand data shows that in the 12 months to March 2022, the total value of residential sales nationally stood at $84.16 billion. By March 2023, the annual figure had retreated to $56.41 billion.
“Given the rise in the number of industry participants indicating a bottoming out in residential sales declines, this would also suggest that the end of declines in sales activity within the commercial and industrial sector is also imminent.”
David Burley, Auckland Director of Investment Sales at Colliers, says there’s a range of factors that are contributing to the start of a potential uptick in sales volumes.
“The main driver of market activity that we have seen during the past four to six weeks is vendors acknowledging that pricing for assets across the board has now stabilised,” Burley says.
“This stabilisation means purchasers and sellers are closer in their respective expectations, which will ultimately lead to further transactions.”
During the past few months Colliers Brokers across the country have transacted major deals, including a substantial industrial property at 494 Rosebank Road in West Auckland, 20 Sir James Wattie Drive in Christchurch, which sold for approximately $30 million, and 139 Cascades Road in Auckland, which generated a 5.7 per cent yield on passing income.
Securing finance has been a challenge for some buyers but Burley says owner-occupiers remain a popular type of purchaser for banks because they can borrow against the financial strength of their business.
“As enquiries continue to flow in on our current listings, there is a general feeling the market will be more active in the second half of 2023.”
- Article supplied by Colliers
