An easing of a supply shortage and further strengthening of sales activity are likely to be features of the commercial and industrial property market this year, says John Church, general manager commercial and industrial for Bayleys Real Estate.
In his introduction to Bayleys' first Total Property magazine for 2014, Church says there are already indications a greater volume of properties will be put up for sale this year in anticipation of interest rate rises and as more owners look to take some capital gain from increasing values. "However, given we are still a long way from the top of the value cycle, onshore and offshore buyer demand will be very strong and is likely to continue to outstrip supply," he said.
Church is also expecting property investment yields to hold firm despite some expectation they will soften when interest rates go up later this year.
"We doubt this will happen with buyer competition likely to keep yields at current levels," he said.
"The moderate and incremental nature of interest rate increases forecast will also ameliorate their impact."
Other key trends that Church sees playing out this year are:
A lift in development activity and the return of "land bankers" to the market is resulting in a boost in the sales of vacant land and redevelopment sites which will go up another gear this year.
A continuation of the strong growth in leasing activity, in combination with reducing vacancy levels, will put upward pressure on rentals, particularly in Auckland. Rental increases have already been occurring as a result of a shift towards rent reviews based on Consumer Price Index increases, Church said. "However, there is now also a reasonable expectation of increases in face rentals for owners of good, well located buildings that have rent reviews to market coming up and where existing rentals were set post the global financial crisis."
The shift in the balance of power from tenants to landlords is expected to gather further momentum this year with incentives a much less significant feature of the leasing environment. This will also contribute to increases in net effective rentals.
Better economic times are resulting in a refocusing on sustainable building philosophies and standards. Green buildings are back on the shopping list and most new office buildings this year will have a green star rating because tenants are requesting it as part of a total leasing package.
Investment interest in Christchurch should grow from other parts of New Zealand and from offshore with the focus of the CBD rebuild now shifting from infrastructure and demolition to developing new buildings. "Investors like new buildings with long leases to solid tenants, and a severe shortage of these types of properties for purchase in Auckland and Wellington CBDs provides a significant opportunity for Christchurch," Church said.
Greater investment in urban property by farmers is probable on the back of record dairy payouts. "Up until now, farmers have been focusing mainly on retiring debt and expanding their farming operations. But historically, they have also been significant investors in commercial property," Church said. He says property markets in cities "such as Christchurch and Hamilton, which service strong farming areas, as well as provincial towns" should benefit as farmers spread their investment risk.