Central and lower North Island’s commercial property reviewed

In the second of a three-part series, Bayleys’ regional managers comment on activity and values in their respective regions.

Waikato
Leasing activity levels have increased across all sectors while rental values have either risen slightly or remained stable.

Bayleys Waikato commercial manager Richard Graham says office rental values in the CBD have generally remained stable but the dynamics are changing.

“Two big new office towers have gone up in central Hamilton resulting in a shuffle of tenants around the city, with some increased rents being paid to secure prime space” Mr Graham says.

Retail rental values have remained stable in prime locations and have declined in secondary locations due to higher vacancy rates. Mr Graham says the $40 million-plus redevelopment of Centre Place shopping centre in the CBD has attracted tenants to surrounding stores and helped condense the retail footprint in the central city.

The industrial sector is active and Mr Graham says while he has not seen huge jumps in rental growth, there is some pressure evident as demand is strong. Large tracts of industrial land north of Hamilton are being developed, which will widen the options.

Investment yields have increased. Buyers are seeking well-built stock with stable tenants, and yields are improving for these properties. 

“There is plenty of building under way and the Waikato Expressway, which is under construction, is also fuelling activity,” Mr Graham said.

Bay of Plenty
The office market has been challenging, with supply exceeding demand according to Bayleys Bay of Plenty manager, Dickie Burman. 

“Several new builds in Tauranga have had good uptake, while seismic compliance has resulted in increased vacancy of low-NBS rated buildings across the region,” Mr Burman said. 

“Rental values have increased for A-grade office stock and decreased for B-grade stock.”

Retail leasing in Mount Maunganui has remained buoyant while, in the Tauranga CBD, it has been more subdued with rental values following suit. 

Industrial rental values have been stable and the industrial market has remained relatively strong. 

Yields have firmed slightly on A-grade investments but softened on those with poor risk profiles.

“There are some positive signs for the Bay of Plenty commercial market with a new office complex under construction for Trust Power expected to bring around 400 people into the CBD of Tauranga and likely to spark up the retail sector,” Mr Burman says. 

“Inland Revenue is in the process of selecting its new office development site, while a new home for Westpac is under construction.

“The Port of Tauranga continues to attract new business and the new eastern bypass is nearing completion – that will open up commercial and industrial activity in the Papamoa and Te Puke areas.”

Hawke’s Bay
It has been a tale of two cities in Hawke’s Bay as Napier has largely trumped Hastings on rental values and activity, according to Bayleys Hawke’s Bay regional general manager Adrian van Dyk.

“Higher office rental rates in Napier have been driven to a large degree by several major new developments. However, there remains an over-supply of second and third tier space,” Mr van Dyk says.

“There is a clear two-tier retail rental market operating in Napier with rental rates around the new Farmers development peaking. Retail rental values remain stable in Hastings following on from a major shift two years ago. Incentives are still being requested by tenants in both cities.”

Industrial rental values have remained stable and investment yields firm.

“Landlords and owner/occupiers appear upbeat and the outlook for Hawke’s Bay is positive with high levels of business confidence,” Mr van Dyk says.

Manawatu
Office tenants in the Manawatu are concentrating on properties with high seismic ratings says Bayleys Manawatu regional general manager, Adrian van Dyk.

“Consequently there is an oversupply of second- and third-tier office space, with landlords needing to provide incentives although rental values have in the main been stable.”

Retail rental values have decreased. However, Broadway Avenue is now back in favour with the redevelopment of the old Farmers building and the move of a major national tenant to a nearby site. 

“We see positivity ahead for the next 12 months in the Manawatu with an increase in tenant enquiry occurring and a continued high demand for investment stock,” Mr van Dyk says.

Wellington
Bayleys Wellington director Mark Hourigan says office rental values have increased across the Wellington region, with evidence of tenants upgrading to re-strengthened seismically compliant buildings, which typically involve limited or no lease incentives.  There is a surplus of office space on the southern fringe of the city.

Retail rental values are stable, Mr Hourigan says.

“There has been a pickup in demand for well-located retail space and a distinct lack of quality space available in Lambton Quay. The city fringe retail market is relatively slow although there is not a lot of vacancy,” Mr Hourigan said.

Rental values and demand have increased for industrial property with a real shortage of quality stock for lease or sale.

Investment yields have been firm for quality stock. A frustrating lack of investment stock is leaving qualified, passive investors seeking opportunities. 

“We expect confidence to improve in the next 12 months and we have the feeling that we are definitely through the bottom of the cycle.

“The Wellington leasing market is in good heart and there’s life beyond the government sector.” 

Mr Hourigan says a better understanding of earthquake issues and acceptance by sellers of the effect that this has on values is underpinning the investment market. 

See part 1 here - Northland and Auckland 2014 commercial property market in review

See part 2 here - Central and lower North Island’s commercial property reviewed

See part 3 here - South Island commercial, industrial market shows resilience and growth

Jody Robb writes for Bayleys Real Estate