Commercial property predicted to continue golden run as peak nears

New Zealand commercial property is entering its eighth year of a cycle, which has historically lasted between seven to 10 years.

But the message from Colliers researcher Chris Dibble and capital markets director Peter Herdson is that the good times will continue for some time.

"We are far from the risks of an overheated or euphoric market ... We are in a boom market and an extended pattern of buoyant investment activity is likely to continue.

“We are already aware of $2 billion of commercial sales likely to settle in 2016 with an individual price tag of $20 million or more.

“Given the buoyancy in property purchasing below $20 million, we expect 2016 is likely to eclipse 2015 with an aggregate value close to $8 billion.”

This compares with the value of sales in the commercial office, retail and industrial sectors in 2015 at $7.3 billion, well behind the heights of $10.3 billion in 2014 but above the last cyclical peak of $7.1 billion in 2007.

Mr Dibble says major global events are the usual catalyst to depressed periods rather than localised events – for example, New Zealand’s dependence on other countries for trade.

He cites 10 reasons why buoyant conditions will continue, ranging from well-defined global risks to higher yields, Reserve Bank stability, limited political risk and asset values appreciating modestly.

Instead – “The number of conditional deals taking place together with new campaigns to market in the early stages of 2016 point to another bumper year ahead.”

Risks include the US elections, unrest in the Middle East, a slowdown in China and weakening emerging economies.

Locally, demand for dairy products has slowed, the rebuild from Christchurch earthquakes has probably peaked and high levels of net migration are affecting infrastructure and reducing GDP per capita rates.

At the same time, New Zealand is outperforming its major trading partners in many aspects, along with net migration gain from Australia for the first time since the early 1990s.

Last year’s $7.3 billion from 4724 sales was dominated by a handful of offshore investors dominating activity-boosting aggregate values in 2014.

This included approximately $2.4 billion of purchases in direct and joint-venture properties by Singapore’s sovereign wealth fund GIC and Canadian pension fund’s PMP Investments.

Auckland’s $3.9 billion of sales represents 53% of national sales value, Christchurch accounted for 14% of national sales turnover while Wellington at 7% recorded its best ever year in 2015, reaching $1 billion of sales activity for the first time.

More sales activity should be expected outside of the three main centres in the coming years. Hamilton and Tauranga in the North Island and Queenstown and Dunedin in the South Island continue to be regional hotspots, according to Mr Dibble.

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