Commercial property scene here thriving

REDEVELOPMENT: The LJ Hooker building on Reads Quay is the latest example of an old commercial building having new life breathed into it. Picture by Rebecca Grunwell

Gisborne’s commercial property scene is increasingly being revitalised with new investment coming into the city, and Colliers International says that could help encourage existing building owners to modernise further.

In the past demand for commercial investment in Gisborne was limited, but Colliers International commercial and investment sales director Philip Searle said that had now changed.

“The commercial property market in Gisborne is a bit of a mixed bag; on one hand we have modern well-leased properties in good locations, while we have other older-type properties that have significant issues such as a requirement for earthquake strengthening or refurbishment.

“After (many) years working in the commercial and industrial property market, you realise that what is an ideal purchase for one has no attraction for another person. We have a database of buyers looking for well-leased properties that are not in need of work, while others are in the market for properties that have a few challenges such as requiring strengthening, refurbishment or a new tenant.”

Mr Searle said the new Mitre10 building in Derby St, on the former gasworks site, would be a welcome addition to the commercial property scene.

“When substantial investment is made in an area it often gives confidence to another owner to redevelop or rebuild their own property. Some of the buildings that have been strengthened in the past few years have been redeveloped at the same time, turning something that was somewhat of a liability into a desirable investment.

“There is no shortage of purchasers locally when it comes to attractive investment properties, and even more so as people realise their cash investments are getting very little from the banks as interest rates fall. When there is more demand for property, inevitably the capitalisation rate begins to fall.”

The capitalisation rate is the annual return an owner receives from their investment as a percentage of what the property was bought for.

“For many years Gisborne was known for having cap rates of 12 to 14 percent because there was little demand here. Now we are seeing modern, well-leased properties getting down to the low 6 percents. The average fully-leased property would generally sell between 7 to 8 percent but is affected by factors such as location, age and strength of tenant.

“Overall, the standard of the Gisborne commercial property stock is improving steadily. We have fewer and fewer substandard buildings, as developers such as McCannics breathe new life into some of our problem buildings. Time generally catches up with all properties as they become economic to repair, replace or pull down, and we see the local landscape quietly changing for the better.”