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Office market leading the pack

Please find our latest press release on JLL’s analysis of transaction trends for Q114.

Office market leading the pack

Increasing investor confidence and an improving economic climate is continuing to drive transaction volumes to new records across the New Zealand market. Following the strong start to 2013, the second half of 2013 has seen this momentum continue. A total of over NZD 2 billion worth of property was transacted in 2013, a level not seen since before the GFC.

The office market continues to lead the pack as investor demand remains strong. A total of NZD 605 million of office transactions were completed, a 188% increase to total office sales when compared with the same period in 2012. The largest of these being 73 Remuera Road which was sold for NZD 100

million at an initial yield of 7.0%. The second largest sale was the 205 Queen Street which was sold to the Australian property firm Bloomberg Incorporation.

Justin Kean, Director of Research and Capital Markets at JLL says, “These purchases and others like it are motivated by the fact that demand for new builds in fringe areas still remain strong. The greatest gains to be made in the New Zealand market are in the office sector, however timing in the asset class is everything with the deep value swings in the sector adding significantly to the sector risk and of course potential returns.”

Kean continues, “While several assets were purchased by international investors over 2013, we expect to see this interest intensify through 2014 as New Zealand continues to remain a favourable location to international investors. This weight of capital will likely see Australian investors back in New Zealand before year end looking for non-core plays.”

Private investors remained the most active investors over the last half of 2013 accounting for 54% of all transactions. REITs including NPT, Argosy and DNZ as well as several corporates were also active over the period.

The industrial sector transaction values have experienced further improvements, rising 85% when compared to 2012. The second half of 2013 saw the majority of purchases completed by private and stand-alone investors, with the only one major investment from a REIT coming from Argosy Property’s purchase of 19 Nesdale Avenue, Wiri.

Sam Smith, National Director of Industrial Sales and Leasing for JLL says, “Steady income stream, single tenant and value add potential benefits have attracted several investors to industrial property. The most popular price level has been the smaller to mid-sized assets ranging NZD 5 to 10 million which are being traded mainly by high net worth individuals with access to capital.”

Auckland continues to make up the majority of all sales in the country with 76% of all transactions occurring in the Auckland region with Wellington and Christchurch taking 10% and 8% respectively. Strong capital flows have also been recorded in other parts of New Zealand with NZD +5 million transactions being recorded in Hamilton, Dunedin and Palmerston North.

Office assets will continue to remain a top pick for investors, however as markets offer greater liquidity, prime industrial and retail assets are likely to enter the market as buyer activity remains strong.

All sectors are experiencing stronger demand in tandem with a modest development pipeline which is likely to feed further growth in rental levels. If these conditions keep tracking at current levels, we are likely to see the larger corporations and REIT’s to be more prominent over 2014. It is expected that in 2014 that the NZD5-10 million price stratum will remain the most popular for investors due to the easier entry level as well as the amount of available stock.

JLL’s analysis covers all real estate sales transactions across New Zealand above $5 million. The second half of 2013 saw transaction volumes rise 70% compared with the second half of 2012, as investor confidence continues to improve, spurring on demand.

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