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News Release

Decision Time



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

As commercial property markets gather momentum and begin to enter into a new phase of the cycle, property consultants Jones Lang LaSalle are observing several new trends that are resulting in both higher levels of appetite for core properties as well as the emergence of non-core plays.

There has been considerable market commentary around a strong market preference for core properties as evidenced by recent sales such as One Queen Street, the GHD building on Napier Street as well as the anticipated sale of the Telecom Building on Victoria Street.

Despite large numbers of market players still seeking out institutional core product Jones Lang LaSalle has also seen a revival in the market place for non-core and value add assets. This has been played out in the demand for land such as Kawarau Falls Station in Queenstown and Flat Bush Road in Auckland where there remains demand for assets that are not considered core.
Nick Hargreaves, Managing Director of Jones Lang LaSalle, who was responsible for the sale of One Queen Street along with John Binning, says, “With the market evolving the way that it is, it is clearly time for market participants to do your homework, pick a strategy and then execute.  There have been several market players that have opportunistically re-entered the market over the past 12-18 months. If these investors do not now seek to execute a targeted strategy they are likely to find themselves out priced, outbid and empty handed.”
Justin Kean, Director of Research and Capital Markets for Jones Lang LaSalle, says, “Although the market is not yet in favour of landlords we are getting there. The Jones Lang LaSalle Landlord Misery Index which combines office vacancy and lease incentives for prime office space, suggests that by mid to late 2014 the balance of power will shift in favour of landlords as vacancy and incentives decrease”.
Kean continues, “The market is at an inflection point where assets are quickly re-pricing. As the market passes this point, we will see market players needing to execute more definitive strategies  which will often involve moving up the risk scale in order to unlock value in the market.”

Jones Lang LaSalle is also witnessing a large number of international buyers that are rotating back into the market and this implies that the ‘counter cyclical players’ – or the smart money, is back in the market. New Zealand for many international investors is no longer considered a core market in their strategy and hence has spent the last 18 months to 2 years trying to exit. As other markets become overheated however, such as the Australian REIT market which last year raised over AUD 1 billion in new capital, we are likely to see that capital return over the medium term.

These tightening market trends are being witnessed across Asia Pacific where Jones Lang LaSalle has a 33% market share across the transactional market, more than any other broker. This market coverage has provided the company with significant insight into the overall market direction in the Asia Pacific region.

Despite the quick evolution of the capital market for assets however, leasing decisions are still being made slowly. Kean continues, “It is clear that the current surge in investment is occurring ahead of the tenant recovery. By this we mean that despite the fact that markets are moving to a new pricing paradigm we are yet to see significant rental growth. We have a strong degree of certainty that this rental growth will come as the economy recovers and reaches higher levels of capacity utilisation. As such even buying assets that have re-priced today remains a good strategy given the rental growth that is likely to unfold through the next 24-36 months.” 

Ultimately, we are heading in the direction of a recovery. Yet, until the economy is firing and the corporate sector is growing their occupancy requirement there remains opportunities to get into the market ahead of the tenant driven uplift.