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News Release


Auckland commercial property market strong across all sectors

JLL releases commercial property research for Auckland



Long term investment with development potential/new-zealand/en-gb/news/916/long-term-investment-with-development-potentialAUCKLANDLong term investment with development potential
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Auckland image-min.jpgA positive Auckland commercial property market boosted by country’s sporting success.

While the country is buzzing following New Zealand’s victory in the America’s Cup and the successful Lions Rugby Tour (from a retailer’s perspective), the wider New Zealand commercial property market is also performing well, as we pass through the middle of 2017.

The Lions Tour historically has brought in millions of tourist dollars and in 2017 it has not failed to disappoint, with red jackets dominating rugby stadiums at every match. While the final numbers have not been tallied, it was predicted that this tour would bring in $26.7 million to Auckland alone and generate 165,210 bed nights, which has resulted in accommodation providers being pushed to their limits.  

Although the overriding sentiment for New Zealand’s commercial property market is positive, some concerns are evident.  Interest rate increases and the availability of credit to the commercial property market remain front of mind, while geopolitical uncertainty offshore poses obvious risks to us as a trade dependent nation.

JLL Associate Director of Research and Consulting, Tom Barclay says, “New Zealand has been a popular place to invest of late, particularly with offshore interests. Some investors have been removed from the market as access to funding has tightened, although this mainly impacted on local investors operating in the $1 million to $10 million bracket and for development plays rather than institutional quality stock. Even with foreign buyers active, the rate of yield compression has slowed throughout the country in response to a bottoming out of interest rates. It is possible that premium assets will see further yield compression with secondary and non-core stock likely approaching a cyclical low point.”

Office market

JLL recently reported that Auckland is a ‘sweet spot’ for tenants. This rings true, with a growing number of white collar workers in the city and numerous tenants committing to higher quality space this year to date, predominantly in the prime sector of the market.

Says Barclay, “CBD vacancy rates have risen slightly to 6.8% in our June 2017 survey from 5.4% in December 2016. This can largely be attributed to refurbished properties re-entering the market along with the completion of some major new buildings resulting in occupiers like Datacom leaving behind some substantial backfill space. That being said, vacancy is still at historically low levels and given the limited supply to be delivered over the next 18 months, vacancy is expected to stay tight. Overall the market remains favourable for landlords.”

Rental growth is still present in the market, although this has slowed from the rapid pace of increases observed over 2015 and 2016. 

Industrial market

New Zealand’s industrial market has remained strong so far this year, with the BNZ performance of manufacturing index indicating a score of 58.5 in May, its highest level in 16 months, signaling the manufacturing sector is in growth mode. 

Vacancy levels remained fairly flat across the Auckland market at 2.9% of the 10.89 million sqm JLL currently tracks. The North Shore market was the toughest point to enter with a vacancy rate of only 2.2%.

“Substantial new supply continues to enter the market, predominantly in the South Auckland precinct. The persistently low vacancy rates indicate that demand is more than capable of meeting new supply. The pipeline currently under construction which JLL tracks, exceeds 150,000 square meters, indicating the confidence developers have in the strength of the occupier market,” says Barclay. 

Investors are active and with their interest comes compressing yields, with the prime average dropping below 6% to 5.8% for the first time and secondary yields sitting at 7.38%. Transactions to date for 2017 have typically been in the sub $10 million market, with some acquisitions and disposals by listed sector above this price point. 

Retail market

With consumer confidence at its highest levels since 2015, the Auckland retail market has been a strong performer so far this year. Motor vehicles, food and accommodation proved to be the most popular items on consumers wish lists, with the latter indicating that tourism has had a strong hand in this, no doubt helped along by the recent Lions Rugby Tour.

Rental growth has slowed with small increases in the CBD area and bulk retail markets. Prime locations are performing well, while the dominant regional centres and premium high street retail areas place pressure on secondary retail locations. 

Higher interest rates and weaker secondary locations have seen yield compression slow for some property owners. A real risk for the retail sector is further increases in rates and any further slowdown in the residential housing market, as these two factors heavily influence retail occupiers through consumer spending. ​

Read the Stuff article here​