KEY POINTS:
The real estate industry has to deal with and adapt to big changes in the commercial and industrial property market as a result of the upheaval in global financial and investment markets.
Writing in Bayleys' latest Total Property magazine, Mike Bayley, managing director of Bayley Corporation, says this international turbulence has had a substantial effect on property market confidence, but it has also opened up significant opportunities for counter-cyclical investors.
Bayley says there are now marked contrasts in levels of activity across different value segments of the market, with little happening in the $10 million plus sector but a good level of interest remains in properties under $1 million.
"Investors switching out of residential property and farmers with cash are helping nudge this sector of the market along. The old adage that 'no deal is too small' has particular applicability for real estate agencies in the current market."
He says evidence of the resilience of the lower-value end of the market was provided last week when nine out of 10 commercial and industrial properties put up for sale at a Bayleys Wellington auction sold at a total value of $6.1 million, with prices ranging from $160,000 to $1.25 million. All but two of the sales were in the $1 million or under price bracket.
Mark Hourigan, a director of Bayleys Wellington, says there was multiple bidding on all the properties with a good mix of owner-occupiers and investors competing on the auction floor.
Hourigan says commercial and industrial property is seen as reasonably stable and secure by investors, given the huge volatility being experienced in other investment markets.
"We're witnessing a number of new investors coming into the market at present, some of whom are moving out of equities. With fixed-deposit rates moving down, we're also starting to see investors moving money out of the banks back into investment property."
Bayley says transactions are still being concluded in the middle segment of the market between $1 million and $10 million, but activity has slowed.
"As a consequence of the reduced amounts of finance available, we are seeing a re-emergence of the trade market where properties or other assets are exchanged to help make transactions happen. A number of our senior agents are revisiting their experiences with trades in the late 80s and early 90s to keep this sector of the market ticking over."
In a recent example of a trade deal, a property in Allens Rd, East Tamaki, has been exchanged as part of the sale of a larger industrial property in Settlement Rd in Papakura that is currently occupied by Croxley Stationary, but will be vacant on settlement.
DNZ Property Fund has sold the 8896sq m factory, warehouse and office building on a 4.05ha site on the corner of Settlement Rd and Dominion Rd for $5.5 million to an owner-occupier.
As part of the sale, DNZ acquired the East Tamaki property that the purchaser is relocating from for $2 million. This vacant building encompasses 1767sq m of workshop, office and showroom space on a 4186sq m site.
Mike Houlker, of Bayleys Auckland, who negotiated the sale of both properties with Jane High of Bayleys Manukau, says this is a good example of a trade transaction that worked well for both parties.
"The purchaser of the Settlement Rd property needed more space to expand its business and this building suited their requirements. However, they were concerned about whether they could sell their existing building in a challenging market, particularly as it was in need of refurbishment," says Houlker.
"From DNZ Property's point of view, it meant they could exchange a large vacant building for a smaller one. As a substantial player in the property market, they also have the expertise to refurbish and add value to the Allens Rd property and to lease it or sell it on at a later stage."
Another recent trade transaction involved the sale of the distinctive Chinese lantern-shaped, 11-level Choice Plaza building in Wellesley St through Robert Platt and James Chan of Bayleys Auckland Central. The sale involved the trade of a substantial Auckland residential property.
Bayley says while the market for larger investment properties has slowed, attractive yields for these higher-value properties are enticing some buyers.
Houlker and Scott Kirk of Bayleys Auckland Central, in conjunction with Daryl Devereux of Bayleys North Shore, recently sold a modern distribution centre in Aetna Place, Henderson, for $6.9 million at a 9.4 per cent yield.
The 6495sq m warehouse and office building on an 8712sq m site has a new 10-year lease to an Auckland hardware company, with two-yearly rent reviews to the greater of CPI or 3 per cent.
In Manukau, a property featured in Bayleys' Winter Total Property portfolio, with a 20-year lease to an Irish pub and a new 10-year lease to a steak house, sold recently for $4.35 million at a 9.5 per cent yield. Located on a 6296sq m site at 712 Great South Rd, Manukau, it was sold by Mark Pittaway of Bayleys' Manukau office.
Meanwhile, down in Wellington, Robt. Jones Holdings (RJH) has diversified its portfolio of predominantly CBD office buildings with the purchase of a new 4050sq m building on a high-profile site in Lower Hutt for $6.4 million at a 9.1 per cent yield.
The building at 395-399 Hutt Rd, sold by Mark Hourigan and Colin Hodge of Bayleys Wellington, was completed last year and houses a new ten-pin bowling and Laserstrike centre, plus three other national tenants.
RJH's Wellington manager Sam Cooper says the company is keen to exploit recession-induced opportunities to build a high-quality portfolio in industrial locations for diversification reasons. "We anticipate continuing purchases in line with our traditional counter-cyclical strategy."
Bayley says the market is coming off a period of unusually low property yields and is having to readjust expectations, particularly for larger properties. "Yields are regaining their traditional cushion over fixed interest rates. This will become more pronounced as banks continue to lower their deposit rates."
