Bayleys' first big national Total Property commercial and industrial portfolio auction for the year has produced a strong result with 80 per cent of 30 properties offered selling at a total value of $37,660,000.
A total of 12 properties auctioned in Auckland sold for $19,022,000 while another 12 properties in Kerikeri, Hamilton, Tauranga, the lower North Island and Canterbury sold for $18,584,000.
"This is a very solid result and will give commercial property markets throughout the country an injection of confidence about 2017," says John Church, Bayleys national director commercial. "It reflects a strong economy and positive investment environment and demonstrates there is still good demand for commercial and industrial property, albeit that there appears to be some shrinking of the buyer pool."
Church says the successful start to 2017 picks up from a strongly performing auction market in 2016. Last year, Bayleys sold $339m of commercial and industrial properties nationally using the auction method of sale, with a clearance rate of 73 per cent on over 300 offerings. Most of these sold under the hammer but some also sold prior to the scheduled auction date or shortly after.
Bayleys' Wellington auctions had the highest clearance rate of 85 per cent, with Auckland clearing 75 per cent of the offerings and a slightly lower clearance rate at provincial auctions. Sale prices ranged from $92,000 to $11,850,000, with an average sale price of $1,487,017.
Writing in Bayleys' second Total Property magazine for 2017, Church says auctions have long been the best way of valuing commercial and industrial property, providing the market with a good picture of where prices and yields are sitting. "In most instances, they also provide the most effective method of sale for vendors, outperforming other forms of sale by a considerable margin."
Church says last year's auctions produced a stream of new benchmark yields as strong bidding competition and a continuing decline in interest rates squeezed cap rates lower than many market observers expected them to go. The traditional yield differential between lower and higher value properties all but disappeared with larger sales also chalking up some very low yields.
This was illustrated in last week's first Total Property auction for 2017 where the lowest priced property, a small retail investment offering Porirua, sold for $325,000 at a 5.6 per cent yield while a new two-level office building in Hamilton's CBD sold to an offshore investor for $4.7m at a 5.3 per cent yield.
However, rising interest rates are likely to put an end to the long run of yield compression that vendors have enjoyed, says Church. "If anything, we might see cap rates start to nudge up a little. An increase in the cost of a more limited supply of funding will also put pressure on prices, as we are already seeing with land sales.
"In this changing and more uncertain environment, auctions are an important barometer of where the market is heading and will have a vital role to play in determining values. They will continue to be the best way for vendors to achieve the maximum possible, unconditional price for their properties.
"For purchasers, they will also ensure that they are not paying 'yesterday's prices' because auctions offer the most transparent method of purchasing property. Purchasers can see who else is competing for an offering and can make an educated decision on whether to continue with their bidding. With other methods of sale, potential purchasers have no idea what others are offering and are essentially making a 'stab in the dark' which can be risky in a shifting market."