For Investors its Back to the Office
For Investors its Back to the Office – Jones Lang LaSalle Sees Investment Volumes Grow
Jones Lang LaSalle has issued its most recent New Zealand Transaction Trends Report covering all available commercial property transactions that occurred in the New Zealand market in the first half of 2013.
The underlying data shows a significant uplift in the volume of sales with the first half of 2013 seeing $1.07 billion in transactions. This compares to $1.46 billion in total commercial sales in the full year 2012 and is the highest volume of sales in a six month period since the second half of 2007.
Justin Kean, Director of Research at Jones Lang LaSalle says, “Clearly we can see the market rebounding in terms of transactional volume and confidence. The second half of 2012 saw the creation of liquidity through the sale of several large retail assets including Kelston Shopping Centre, the Westfield assets in Auckland and Porirua Mega Centre. In the first half of 2013 it has been offices that have come to the fore.”
Office sales totalling $534 million transacted through 1H 2013, representing 52% of all sales for the period. The largest of these being 1 Queen Street which was sold for $103 million at an initial yield of 7.7% with Jones Lang LaSalle brokering the deal. The second largest sale was the GHD Centre in Napier Street. This property transacted for over $63 million in the early part of this year demonstrating that appetite for new build out of the CBD is still available.
The industrial sector has likewise experienced a solid rise in transaction values, up 85% when compared to 1H 2012. This indicates that industrial assets are continuing to appeal to investors not only as a diversifier but also for the easy management style and their generally steady yield profile of the asset class. The vast majority of demand in the industrial sector continues to come from private and stand-alone investors while corporates generally remained neutral with the only major investment coming from Argosy Property’s purchase of 80 Favona Ave. For the most part, smaller to mid-sized assets ranging from $6 to 12 million are being traded by family offices and HNW’s with access to equity and limited need for lending.
Auckland continues to be the most active market in the country with 82% of all transactions by volume occurring in the Auckland region. Wellington accounted for most of the balance of transactions with 18% over the period with the majority of Wellington’s transactions occurring in the office sector.
Regan Simpson, Director of Asset Management at Jones Lang LaSalle says, “Office as an asset class is highly volatile however it is also the asset class where the best returns are to be made so long as the entry is at the right stage in the cycle. We have seen several investors in the last six months position themselves in office in order to take advantage of forecast rental uplifts and yield firming over the medium term.”
The beginning of 2013 continues to demonstrate that large investors are back in the market and this is putting downward pressure on yields. We anticipate that quality assets will receive the most attention with core plays remaining popular. We are also likely to see the resurgence of value add plays as the supply pipeline remains limited and occupier demand begins to pick up, albeit, occupiers are expected to remain subdued over the short to medium term.
While minimal damage was recorded after several earthquakes hit the greater Wellington region, it highlights the earthquake risks that are prevalent for the area. Simpson continues, “Buyers are expected to remain cautious when looking at Wellington based assets with interest generally being focused on high quality properties. However, some of the more risk prone investors may hone their capital on the more volatile options if a comprehensive and well thought due diligence approach is adopted. Landlords of secondary buildings may find conditions more challenging moving forward, as capital to inject and rejuvenate their asset may be harder to secure. “
Kean continues, “New Zealand’s yield advantage over other markets as well as the ‘risk free rate’ will likely continue to attract buying interest from Asia Pacific. We expect industrial to remain popular however as markets offer greater liquidity trophy office and retail assets are likely to enter the market with buyers looking for an exit and a chance to reposition their portfolios.”