Watch: JLL NZ’s webinar series episode 2 – Critical capital markets updates

On Wednesday 22 April we held the second episode of exclusive webinar series to provide some clarity in these uncertain times. You can view the first episode providing a general overview of the current New Zealand commercial property market here.

This episode focused in our current environment and the implications for New Zealand and Asia Pacific capital markets. Moderated by JLL New Zealand Managing Director, Todd Lauchlan, the panel featured a host of distinguished experts from across the region:

• KK Fung, JLL Greater China CEO
• Stuart Crow, JLL Asia Pacific Capital Markets CEO
• Fergal Harris, JLL Australia Head of Capital Markets
• Ross Bolton, JLL New Zealand Capital Markets Director

There were a series of questions from our guests throughout the webinar – more than our panellists had time to answer – so JLL New Zealand Capital Markets Director Ross Bolton has taken the time to answer the questions below.

What is the view of NZ as a safe haven, how might its success in dealing with COVID-19 elevate that status and is it likely we will see more capital with appetite for both CRE debt and equity arrive here as a result?

Yes, we have seen a rise in the number of enquiries from off-shore institutions, family offices and HNW individuals. The relative isolation of the country has certainly helped limited the exposure and some institutions are now looking at New Zealand effectively as a ‘litmus test’ for how other Western countries might perform when lockdown restrictions ease.

The desire from sovereign wealth groups and managers to place capital in the market has only increased – both for equity and debt – but placing it here will be a challenge with the border restrictions in place.

What do you anticipate by way of a trend for the risk premium, by way yield differential, likely to be applied to NZ assets by investors?

It varies across sectors and is now more centred on tenant credit covenant strength (in the near term at least). Sentiment from the buy-side suggests a mild softening for yields for industrial assets of around 10-15 bps, office assets of around 15-25bps, and retail assets for around 25-50 bps. Premium core assets are still highly sought after and we don’t see any softening in those yields yet.

In a post C-19 world, what will the profile of international investors looking for long-term property investment in NZ look like?

No significant change in the profiles.

Has anyone actually contracted, completed due diligence and completed a transaction under "lockdown"?

Yes, mostly smaller sized assets and predominately industrial, given the reduced gap in yield expectations. Income concerns have been addressed by underwrites from the vendor or via the use of escrow accounts for a set period (12 months).

Is there any recent transaction evidence that points towards cap rate softening?

Not yet in the Grade A space for larger assets. Valuation adjustments and sentiment would point to a high correlation to the Australian market.

We are holding our next webinar on Wednesday 6 May with a focus on providing clarity on the industrial property market within New Zealand.

Register now to save your spot.