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News Release

Auckland

Portfolio players dominate NZ’s capital flows


 

 

Grey Lynn office unit decked out for summer/new-zealand/en-gb/news/864/grey-lynn-office-unit-decked-out-for-summerAucklandGrey Lynn office unit decked out for summer
East Tamaki gem with new five-year lease/new-zealand/en-gb/news/863/east-tamaki-gem-with-new-five-year-leaseAucklandEast Tamaki gem with new five-year lease

​2014 appears to have broken all records in the institutional commercial property market across New Zealand. According to property consultants JLL, the value of transactions dwarfed the previous record bolstered by large volumes of international capital. The question for the market heading into 2015 is where will the market go from here? 

Although transaction volumes for 2015 have remained robust, global property experts JLL doubt whether the New Zealand market will see the same level of transactions achieved in 2014 given the role that large portfolio transactions played in the 2014 numbers. 

“2014 was an absolute behemoth of a year totalling NZD5.1 billion, more than doubling 2013 and the largest transaction total when compared with any other volume in the New Zealand market,” says Nick Hargreaves, managing director of JLL. “This tops the market activity of the last investment cycle pre GFC in 2006.”

JLL researches tracked the transactions over NZD$5million in 2014 which grew by 143% over the previous year. The numbers show that the majority of last year’s sales volumes were derived from three transactions; Canada's Public Sector Pension Investment Board (PSP) purchasing the AMP Capital portfolio and Singapore’s GIC entering a joint venture with both Goodman Property Trust and Scentre Group, the trans-Tasman Westfield mall owner. 

Justin Kean, head of research at JLL says, “These underlying transactions show significant growth in 2014, however rather than investors attempting to purchase property, there was a distinct trend toward portfolio transactions which comprises a different rationale than an investor just wanting to buy a building.”

Kean says, “The nature of portfolio moves like GIC’s are opportunity driven, these strategic capital plays involve buying and holding an asset whilst looking for a clever exit strategy that enables them to recycle their capital or sell into the public market.”

“Pension fund investors like PSP Investment and Deka Immobilien however, are looking for somewhere to park their capital where it will generate income and yield in the long-term. Their motivations are to take advantage of New Zealand’s solid yield profile which offers significant advantages over an international investment environment that is plagued by record low yields and limited potential for capital value growth.”

JLL do not expect to see a repeat of these very large scale transactions in 2015. “This is not a case of the amount of capital decreasing, rather it is more a case of the amount of stock not being available in markets like Auckland that will result in transactions,” says Kean. “That is both prime commercial property stock as well as stock located in the traditional institutional markets. Investors will need to go outside Auckland and outside of the Core market sector in order to make transactions happen”. 

JLL sees a potential for other key markets around New Zealand, a trend that is already evident in sales figures. Hargreaves continues, “2015 will see investors step outside of their traditional focus moving away from Premium/Grade A assets to Grade A/Grade B assets. Investors will need to take on leasing risk, refurbishment risk and seek stock in locations they have not been to before.” 

Regional areas experienced an increase in institutional transactions and saw a record performance in the +$5 million transactions in 2014 with large sales being completed in areas like Hastings, Tauranga, New Plymouth and Taranaki. This shows investors are moving up the risk curve to secondary and value add opportunities and capital that is usually focussed on Auckland is moving to regional areas creating an active market. Likewise Wellington had their best ever performance in history in 2014 doubling their sales volumes.  Auckland continues to remain the most active market with 70% of all transactions, 13% for Wellington and 7% for Christchurch.