Bayley’s packed Auckland auction room is indicative of the current strong demand for commercial and industrial property
Both local and offshore investor demand for commercial and industrial property continues to outstrip supply. Many of the favourable market conditions that contributed to a record year for the commercial property market in 2015 have continued into 2016.
“With the year now well under way, it is clear that the market has picked up where it left off last year,” says Bayleys national director of commercial John Church. “Most commercial agencies are reporting a very active and buoyant start to the year and that’s certainly been the case for most of our offices.”
Church says Auckland continues to lead the market with record net migration levels and substantial construction projects providing plenty of economic stimulus. Continuing employment growth is putting additional pressure on already low vacancy rates across many of the city’s industrial, office and retail accommodation markets.
There was a significant uplift in the Wellington market in the latter part of last year and this is continuing. “That market is benefitting from a perception among a growing number of heavy hitting investors that the Auckland market is close to peaking and that the capital is at an earlier stage in the current upward cycle.”
Despite the challenges it is still facing five years on from its most devastating earthquake, there is increasing recognition that Christchurch is making an excellent fist of rebuilding its shattered central city and good solid sales are also being concluded across all sectors, Church says.
“However, perhaps most pleasing is the substantial pickup in activity in many regional markets. Anecdotal evidence suggested these markets were showing good growth in the latter part of last year and the record numbers now coming through in some areas are confirming this. The Tauranga/Mount Maunganui market has been performing strongly for some time now but very high levels of activity are also being recorded in areas which are benefiting from record tourism numbers such as Queenstown, Taupo and the Far North, while regions such as Nelson/Marlborough and Hawke’s Bay are also being assisted by a buoyant viticulture sector.
“Obviously the downturn in the dairy sector is of concern for regional markets and nationally it is likely to dampen economic growth. Banks have so far taken a patient approach and have been capitalising interest on rural loans for the past year or so but this can only last for so long. Unless there is a turnaround in the performance of this sector there could eventually be some flow on effect for property markets,” says Church.
However, at the moment there are excellent levels of enquiry around the country and there continues to be very strong bidding in packed auction rooms on both tenanted and vacant and semi offerings, Church adds. “Some of this enquiry is due to the defensive qualities of commercial property that increases its appeal during periods of market volatility, but the predominant driver of investment activity remains very low interest rates.”
The Reserve Bank’s recent additional cut in the Official Cash Rate is making commercial property even more attractive for investors facing miniscule returns from bank deposits and bonds, Church says.
It also means purchasers can take advantage of very low borrowing rates to secure superior returns on their equity and owner-occupiers can acquire their own premises at a similar or lower cost to renting.
“As a consequence, we expect both local and offshore investor demand for commercial and industrial property will continue to outstrip supply. There continues to be phenomenal international interest in New Zealand property at present,” says Church.
“Chinese investment interest remains strong, and we are expecting increasingly significant enquiry out of other parts of Asia such as Indonesia and India, as well as from Europe, where cash rich investors are looking for alternatives to their own insipid markets.
“However, offshore investors are now facing stiffer competition from a growing pool of New Zealand-based purchasers right through the value chain.” 
