Foreign investment up in commercial property

Foreign investment at the top end of New Zealand's commercial property market has ramped up significantly in the last year, a new agency analysis has found.

Richard Kirke, international sales director at Colliers International, says the agency's Capital Markets team has analysed the past three years of commercial property transactions in New Zealand with a value of $50 million and over.

Kirke says the results show domestic investment down in value by 77 per cent from 2015-2017, from $1.75 billion to $400m.

He says there were 18 commercial property sales worth over $50m in New Zealand last year.

"Of those sales, only five were to domestic parties, accounting for 27.8 per cent of the transactions by volume. However, domestic sales accounted for only 22.5 per cent of the transactions by value — so the vast majority of investment last year came from foreign capital."

Kirke says 35.1 per cent of investment last year was from Asia, followed by 31 per cent from global funds and 11.4 per cent from Australia. By comparison, domestic investment dominated in 2015, accounting for 64.4 per cent of the total transaction value, followed by 21.4 per cent from global funds and 14.3 per cent from Asia.

Kirke says the wave of offshore capital shows no sign of abating in 2018.

"Foreign investors are continuing to seek prime New Zealand assets," he says. "The biggest issue now is a lack of available stock, as owners hold onto their assets to take advantage of record low yields."

He says there is room for even further yield compression due to sustained foreign investor interest. "For the past two or three years — not just here, but internationally — people have been saying 'this is the year that it turns'.

"I don't think this is the year that we'll see yields start to go out.

"I think actually there is a greater likelihood that we'll see yield compression."

Kirke says liquidity in the commercial property market has improved due to the amount of international capital now invested in New Zealand. "That's always been a big concern for offshore investors, and I think they feel comfort now that they're not just selling to a domestic market should they want to exit."

Investors are predominantly looking for assets in Auckland, but prime properties with solid fundamentals in other centres are still appealing, he says.