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New Zealand

Crunch time predicted for commercial market

THE next six to nine months could be a real test for the commercial property market, says Jones Lang LaSalle Wellington director Andrew Brown.



Long term investment with development potential/new-zealand/en-gb/news/916/long-term-investment-with-development-potentialAUCKLANDLong term investment with development potential
Former Fire Station on high profile corner site/new-zealand/en-gb/news/915/former-fire-station-on-high-profile-corner-siteCHRISTCHURCHFormer Fire Station on high profile corner site

THE next six to nine months could be a real test for the commercial property market, says Jones Lang LaSalle Wellington director Andrew Brown.

"Distressed assets have not flooded the market and it remains to be seen if we are really going to see any blood on the floor in terms of increased enforced sales, including those which the mortgagee has taken possession.

"The next six to nine months will be critical as debt cycles on assets roll over."

There was a danger that forced sales could have a cascade effect - "once one calls in their money, others will also want to get their money out".

But he believed many investors were waiting on the sidelines ready to pounce, including those with private equity money raised and ready to go.

"Properties that were selling well and receiving most inquiries remain below the $10 million sweet-spot as high-net-worth investors dominate the market."

Higher-priced landmark properties were generally not available as their owners rightly perceived it was not a market to be selling in.

He said the market was through the worst, but "any sustained recovery will be slow moving as we get ourselves out of the biggest global recession in 65 years."

Mr Brown, who returned to Wellington earlier this year after setting up offices for LaSalle in Vietnam, said international real estate markets were improving.

Global direct commercial real estate investment volumes totalled US$130 billion in the first six months of the year.

A full-year final total is expected to be near US$300 billion - a 40 to 50 per cent increase on 2009, although it is still less than half the pre- credit crisis levels of 2006 and 2007.

The Asia-Pacific region had been the quickest to recover while Europe and the United States were slow and hesitant.

In New Zealand there had been increasing demand for industrial leases and the retail sector was expected to follow suit within the next six to 12 months.

"The office sector continues to be challenged as employment rates in white- collar business remains depressed, which is coupled by an expected increase in supply."

But cautious developers and constrained funding had helped keep a lid on a ballooning vacancy rate, particularly in the CBD office markets.

"Investors remain conscious about the instability in offshore economic and financial markets, the expected increase in the cost of debt and the government policy changes recently announced in the Budget concerning depreciation deductions," Mr Brown said.

Dominion Post