Auckland's strong growth is putting pressure on commercial and industrial property prices as well as residential values, says John Church, national director commercial for Bayleys Real Estate, in his introduction to Bayleys' latest Greater Auckland magazine.
Church cites the latest figures from global property research company Investment Property Databank (IPD), which revalues a portfolio of close to $13 billion worth of predominantly higher value New Zealand office, retail and industrial property on a quarterly basis.
IPD shows significant lifts in Auckland values with the most recent valuations, for the year to March 2015, recording annual capital value increases of 7.3 per cent for Auckland office premises and 5.1 per cent for Auckland retail property. Industrial capital gains are seven per cent in East Tamaki, 6.6 per cent in Mt Wellington, 3.6 per cent for Manukau and the Mangere airport precinct; and 2.7 per cent in Penrose.
Church says while these increases are not as spectacular as the 17.7 per cent increase in the Auckland median house price recorded by the Real Estate Institute of New Zealand (REINZ) for the April 2015 year, they still represent good returns for investors. "This is particularly so when adding on commercial property's attractive income returns which are generally considerably higher than for residential property."
He says one of the key drivers of the increases in both commercial and residential property values in Auckland at present is the big surge in population that the city is experiencing. According to Statistics New Zealand, immigrant arrivals into New Zealand reached a new high of 113,800 in the March 2015 year, up 16 per cent from the previous year.
"Just over half of those immigrants indicated they were settling in Auckland. The reason for that is obvious as it's where the majority of jobs, business and education opportunities are," says Church. "These new residents need somewhere to work as well as live. Fortunately, Auckland's economy is also growing reasonably strongly and is creating new jobs for these people and there has been a positive flow on effect on business accommodation.
"Expanding businesses are leasing and buying more industrial and office premises which is pushing vacancy rates in these sectors down to historically low levels in some areas. Many Indian and Chinese immigrants have a background in retailing and are also buying and leasing retail premises to establish new businesses here.
"This is great for property owners because it means businesses are competing strongly for a decreasing amount of space which is pushing rentals, and consequently values, up."
Church says it is becoming increasingly obvious that the current low interest rate cycle will last a lot longer than anyone predicted and when interest rates do increase, it is likely to be a slow, drawn out process.
"This is good news for buyers as few property purchases are made without some leveraging and with borrowing costs so low it makes investment sense - particularly in the commercial sector where some investors are getting double figure returns on equity as a consequence. Low interest rates are fuelling both the commercial and residential property markets and are contributing to price increases. This is likely to be the case for some time to come."
In Auckland's rising property market commercial and residential property owners, who are considering selling, face a similar dilemma of whether to sell now or wait longer, says Church.
"Every commercial property investment is purchased with a specific life cycle or exit strategy in mind. If owners are reaching a potential point of exit in their ownership strategy, then the high level of sales activity and the impressive capitalisation rates being achieved at present would suggest this is the best selling market Auckland has had for the last 10 years.
"In a market where demand far exceeds supply there should be no hesitation in listing a property for sale."