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Investors keep an eye on rising rates

Investors keep an eye on rising rates

July 8, 2014 - Investor confidence in the commercial property market pulled back slightly in the June 2014 quarter from the record highs achieved in late 2013 and early 2014, a Colliers International survey shows.

The level of confidence in New Zealand was a net positive 25% in the June 2014 quarter, down from 28% in the March quarter, and a record 31% in December. Confidence is now level with September 2013.

“Overall, there is a lot of optimism about the financial returns available from commercial property, but investors are keeping a close eye on the impact that rising interest rates will have on their debt servicing capability and tenant cash flows,” says Chris Dibble, Colliers International’s national research manager. “With 75 basis points of rises in the official cash rate (OCR) in the last six months, and more expected to follow, investors will need to focus on the underlying fundamentals of investment purchasing, considering quality of location and tenancy covenants, add-value opportunities, and their own financial situation.”

Auckland investors remain the most confident in the country, with a net positive 52%, a reflection of the positive population, employment and business environment that provides for just over a third of the country’s total economic output.

Following Auckland, the next highest confidence level was recorded in Queenstown (48%), which continues to benefit from increasing population and tourism growth. Other centres with strong investor confidence include Christchurch (41%), Tauranga/Mt Maunganui (36%) and Hamilton (25%).

Despite the high levels of optimism, investor confidence is down in each of these areas compared to last quarter. Only two of the 11 centres surveyed showed a rise in confidence over the last three months, in Napier/Hastings and Palmerston North. Hamilton and Tauranga/Mt Maunganui recorded increases year on year.

“The growing number of commercial sales recorded over the last five years is likely to slow over the next year as investors become more discerning in their investment selection criteria, reducing the overall number of properties sold. However, this is unlikely to impact values, with properties that show solid passive returns or add-value opportunity still being chased by a growing pool of investors. Our latest publications show forecasts of value growth in many main centres, especially at the top-end of the market given the focus on quality from both investors and tenants,” says Dibble.

Just under 3,700 responses were used to construct the survey results.


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