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NZ investors leading strategic growth in Auckland

NZ investors leading strategic growth in Auckland

31 August 2015, Auckland – Much has been written recently about overseas purchases of New Zealand property.

Most recently attracting attention was KPMG’s analysis of Foreign Direct Investment in New Zealand assets, saying that 59% of overseas investment comes from North America, Australia and Europe - and in particular from Canada, at 22% of total investment.

However, while it is good news that overseas investors are attracted to the fundamentals of New Zealand property assets, this activity is in reality only part of the current investment picture.

Onshore investment still leading

Andrew Stringer, National Director – Capital Markets for CBRE New Zealand, says that the attention on overseas buyers masks another, equally real trend: Kiwis are making the bulk of the strategic land purchases, particularly in Auckland, with a view to meeting a range of demands for growth.

“CBRE has been involved in more than $180 million of land transactions over the past 12 months,” he says. “Of this total, 63% by value were to onshore, New Zealand, buyers - and if you view the transactions by land area, the proportion is closer to 70%.

“Amid the speculation around the motives and identity of overseas purchasers, our investment sales record highlights that the majority of transactions are to onshore parties who are focused on meeting the demand for growth in Auckland as soon as practicable.”

Stringer says that the demand for land is a response to clear market dynamics for increased residential and commercial supply, particularly in Auckland.

“Purchasers have confidence in buying non-income-generating land and holding it while they determine an optimal development scenario,” he says. “All the purchasers we are talking to are seeking to develop land reasonably quickly. They are not displaying what many commentators have characterised as land banking simply to make capital gain.”

He adds that, unsurprisingly, investment is strongly focused on areas with significant current and proposed investment in community facilities and infrastructure, particularly transport.

With Auckland’s population expected to grow by up to one million people over the next 30 years, eight prioritised Metropolitan Centres are receiving a high level of investment and focus under the Auckland Plan, including Hobsonville Point and New Lynn.

“Hobsonville Point has demonstrated how well large scale commercial and residential communities can be created in major growth nodes,” says Stringer. “We’re been involved in three separate land sales totalling 72,000 sqm in the area, all earmarked for residential and aged care uses.

“We have also been involved in transacting 195,000 sqm of residential development land in New Lynn, demonstrating the evolution of mixed use development. There’s an existing town centre, a sophisticated public transport network that has been heavily invested in by a number of motivated parties, and a mandate to build more commercial and residential spaces - and fast.”

“Kiwi Property recently announced it will be investing $36 million in the LynnMall shopping centre, upgrading and expanding the entire facility to include a new outdoor dining and entertainment precinct. Driven by shopper demand and positive growth in the catchment area, Kiwi’s investment is indicative of the level of interest and priority the sector is giving to New Lynn.”

Ageing population driving aged care investment

In addition, New Zealand’s ageing population is leading to considerable investment in developable land by the big operators in the sector.

“Statistics released in June 2015 show that the 65-and-over age group made up 14.3% of the population in 2013, and that’s projected to reach 23.8% in the next 30 years,” says Stringer. “Opportunities are being realised by the major retirement and aged care operators. One such is Summerset Group Holdings Limited, which recently acquired an interest in a 2.5 hectare site in St John’s, one of Auckland’s sought-after eastern suburbs.”

Summerset also acquired the 2.3 hectare former KiwiRail site on Cheshire Street in Parnell, with both sites marketed by CBRE’s John Schellekens and John Holmes.

“Summerset has lifted its build rate target for FY16 to 400 retirement units, up from 300 for FY15,” says Stringer. “They are seeing record sales of occupation rights and profit, and experiencing good demand across the country for their products. Focused on expanding their footprint and offering around the country, the company is well funded, has a good land bank of 25 sites now in place for development, and is well positioned to meet the needs of the growing number of older New Zealanders.”

Institutional investors developing to improve portfolio quality

According to Stringer, another factor is the work currently underway by a number of major investors to improve the quality of their portfolios.

“At a time when the City Rail Link is providing investment stimulus within the CBD, which we have already seen with the Downtown development and the Aotea precinct next - not forgetting the International Convention Centre - significant investment in CRL stations will materially shift pedestrian linkages in the area. This is driving strategic acquisitions now for future development.

“Additionally, major investors are actively developing in order to improve the quality of their portfolios, as their ability to acquire quality investment stock is being stymied by a lack of opportunities. If you look at the work being undertaken by Precinct Properties, DNZ and Cooper & Company for example, their recent announcements all show that they have to develop to do so, which makes strategic landholdings key.

“So, given what we’re seeing now, with what we know is coming in terms of population growth and the Auckland Plan’s node and transport focus, we’re expecting continued demand pressure for strategic holdings adjacent major infrastructure investment and supporting amenity.

“One of the great outcomes of our recent success is that Auckland will probably see the $180 million of land converted to residential and commercial developments that could have end value of more than $1 billion.”


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