Soaring dollar does little to clip buyers' wings

David Bayley in front of the Pernod Ricard building which he has sold for $26.6 million to international investors. Photo / Supplied

It's not often a real estate agent sells the building his company's head office is in, but in David Bayley's case it has resulted in this year's largest commercial property sale to an offshore investor despite problems caused by the rapid rise of the kiwi dollar.

Bayley, the executive director of Bayleys Real Estate, has sold the Pernod Ricard building at 4 Viaduct Harbour Ave in Auckland's CBD on behalf of NZX listed Goodman Property Trust for $26.6 million. The buyer is a syndicate of European investors making their first investment in New Zealand. Bayleys Property Services will manage the building.

Bayleys and Pernod Ricard (NZ) are anchor tenants in the 6900sq m, 6-level office building. It is located on a 2500sq m perpetually renewable leasehold site with the next five-yearly ground rent review in July 2010.

Bayley says the transaction was one of the most challenging he has had to negotiate, with the recent significant upward movement in the exchange rate being one of the reasons.

"The volatility of the exchange rate is not just an issue for exporters, it also has substantial impact on offshore parties that are looking to invest money in New Zealand.

"The kiwi dollar was appreciating quite quickly over the period in which the sale was being transacted and this complicated negotiations considerably. However, at the end of the process we were able to finalise a deal that worked for both parties".

Bayleys Real Estate is the largest tenant in the building, occupying all of the ground, first and second floors with a total net lettable area of 3795sq m. Bayleys has been in the building since its completion in 2000 and renewed its lease for a further nine years in March last year. As part of the lease renewal, its ground floor reception and public area, cafe, auction and meeting rooms had a refit.

One of the world's largest wine and spirits companies, Pernod Ricard, which has naming rights over the building, occupies the top two floors and part of the third floor on a nine-year lease from November 2006. It owns a number of leading New Zealand wine brands including Montana, Stoneleigh, Corbans and Church Road.

The balance of the third floor is occupied by Cook Executive Recruitment and the New Zealand Institute. The property has an average weighted lease term of seven years which Bayley says was a major attraction for the offshore purchasers who were looking for a long-term passive investment.

He says the building, which he marketed with James Chan of Bayleys' Auckland office, attracted a good level of overseas interest which was reflective of the pick up in international investment inquiries in New Zealand property this year.

Bayley has another medium-sized office building in Auckland's CBD under contract to a Singaporean investor and the recent marketing of Pauanui Lakes Resort drew interest from South Korean and Malaysian parties.

Bayleys Auckland's Stuart Bode and Henry Thompson also recently sold one of Auckland's oldest pubs, the Occidental in Vulcan Lane, to a South East Asian investor for $4.35 million.

Bayley says the increase in offshore interest and activity is partly the result of New Zealand performing better than many international investment markets which have been hit much harder by the global economic crisis.

Offshore investors are attracted by New Zealand's relatively stable and corruption free investment and political environment, straightforward land-title system, a lack of stamp duty and capital gains tax and high rental income returns.

"Income yields on our commercial and industrial property have always been higher than in many other countries. An investor in Hong Kong, for example, can borrow in their home market at an interest rate of less than 3 per cent and purchase good quality, higher value property here which is returning 7 to 10 per cent so it makes this market very attractive for them."

"They also love coming down here - they see New Zealand as a safe haven both from a lifestyle and investment point of view."

Bayley says proposed changes by the National Government to overseas investment regulations and a relaxing of the rules covering residency eligibility for high net-worth investors is also likely to stimulate more offshore interest in New Zealand property.

The main constraining factor at present, he says, is the recent appreciation of the New Zealand dollar and its volatility.

"If the kiwi gets down below US60 cents again, there may well be an upsurge in the number of offshore offers being made on substantial New Zealand property."