Private investors snapping up New Zealand commercial real estate at bargain prices
Commercial property investment in New Zealand is seeing renewed interest from private investors who are snapping up millions of dollars of assets in the wake of the recession, according to analysts.
Sales in both Auckland and Wellington are increasing as buyers take advantage of low interest rates and the re-pricing of prime assets, according to Bruce Whillans, institutional investment properties national director for property consultants CB Richard Ellis.
'Private investors are back in the driving seat after a two- to three-year absence from the market when they were unwilling, or unable, to compete with listed trusts and institutions which forced yields down,' he said.
He revealed that CBRE has sold more than $170 million of mainly institution-owned commercial property in the past year to private investors. 'Our clients recognise the market is bottoming out and they are taking advantage of low interest rates and the re-pricing of many prime assets,' he explained.
The company's sales have included six CBD properties in Auckland and Wellington. Among them are a CBD tower in Wellington that sold for $62 million, Forsyth Barr House on Shortland St which went for $41.5 million, the Kitchener St carpark that sold for $19 million, a large commercial building on Albert St for about $20 million and the Crown Institute Building on Lorne St for $10.85 million.
He added that what is happening is typical of a boom bust cycle. He described it as a rebalancing of the investment market after a heady few years of international asset-grabbing by mainly Australian institutions spurred on by the availability of superannuation money.
'Foreign buyers ploughed a record $1.1 billion into the market in the first seven months of 2007. New Zealand's investment returns were exceeding those in Australia and this was underpinning continued interest in the local markets, but this started disappearing early last year when listed trusts began reporting heavy unrealised portfolio revaluation losses of about 10 to 12 per cent, explained Whillan.
CBRE's latest research shows the speed of the turnaround in market fortunes has been swift. After five years of CBD yields firming, prime capital value was unwound in just 18 months. Whillans predicts that institutional investment levels will remain lacklustre for the next 12 to 18 months as the market settles.
He added that listed trusts and institutions are now net sellers and this has allowed private investors and companies to get their hands on some good assets at realistic yields. 'Sales volumes are still quite high, but prices for individual properties are lower. Investors are cautious, reducing risk by only considering properties with good fundamentals. And the increased investment activity shows there is both equity and credit available for the right type of property,' he concluded.