KEY POINTS:
Where to next, after the commercial property boom?
A new air of uncertainty has crept into property business lately as the global credit crunch, rising interest rates and finance company collapses bite into the sector's good fortunes.
And just when developers thought the year ahead looked patchy, politics
is rearing its head and making life even more uncertain.
Few tower cranes hover on Auckland's skyline, after a half-decade of break-neck building, particularly in the apartment sector.
No large new speculative high-rise office towers are being planned and developers are increasingly showing signs of nervousness.
The ready supply of finance for risky development projects has shrunk, after the collapse of many specialist property lenders like Bridgecorp.
Alan McMahon, director of research and corporate services at Colliers International in Auckland, picked up on many of these trends in his latest research report.
"Some property players are choosing to defer decisions until 2008," he wrote in his report, titled "Wait and See".
"A level of uncertainty in terms of interest rate trends and availability of finance for developers is no doubt a contributory factor. In addition, 2008 is an election year and many important policies will be revealed as the year progresses. For investors, and developers in particular, it is tempting to just wait and see what the environment is like in February or March before getting the chequebook out again."
Irrational exuberance was conspicuous by its absence in the commercial property market and many people would argue this was no bad thing, he said. Markets had calmed and investors were being careful. Some vendors' expectations are not being met and developers are finding it harder to fund highly geared projects.
Stephen Saul, head of Jones Lang LaSalle, said new sources of capital would be needed in 2008 to fill the gap left by finance companies. He predicts debt will become more expensive and lenders will demand more equity.
The changing market would also put valuers under more pressure to substantiate their estimates, Saul said. The global credit crunch, yield compression, potential oversupply situations and New Zealand's lack of immunity to the sub-prime crisis would be the largest issues for the sector, Saul said.
Equity requirements would be higher, especially on development projects. Mezzanine debt might not be perceived to be the equivalent of equity by lenders, as it had in the past, he said. Investors would take a more cautious approach to pricing, reflecting the higher cost of capital.
But Zoltan Moricz, director of research and consulting for CB Richard Ellis in Auckland, was somewhat more optimistic, writing in his latest report of a few one-off factors which he reckons will be a fillip.
Overseas investors, KiwiSaver and the New Zealand Super Fund would demand property.
"The structural factors underpinning the property market look favourable," he said.
The effect of finance company collapses had already manifested itself through more restricted access to finance, which curtailed investors' ability to purchase and caused a softening sentiment in the market, he said.
Purchasers of lower quality stock had already downgraded their price expectations but many vendors were still expecting values to be as firm as in mid-2007.
"In 2008 perhaps more vendors will adjust their price expectations to match purchasers if they need to sell."
Some of the largest new developments under way included BNZ's new tower at 80 Queen St, due for completion in 2009.
The planning of new blocks for Telecom and Westpac reflected larger tenants' desire for campus-style, low-rise offices to enhance corporate culture, identity and provide greater organisational flexibility.
Snapshot
* Industrial land values are around $413 per sq m.
* Prime Auckland CBD commercial vacancy is 2.1 per cent.
* Top-end office rents hover at about $550 per sq m.
* Prime CBD retail rents around $1300 per sq m.
