The Henderson Westfield WestCity shopping centre - identified by a red border
Offshore pension and sovereign wealth funds have acquired stakes in assets such as the Henderson Westfield WestCity shopping centre.
Historically low interest rates worldwide are fuelling a demand for New Zealand's commercial and industrial investment property, with offshore investors chasing higher yields, says Whillans Realty Group director Bruce Whillans.
He says the company has had one of the busiest years in listing and selling large commercial holdings, and the evidence that they are being hunted down by offshore buyers is compelling.
"Never before have I experienced the current level of offshore inquiry, with private investors, fund managers and sovereign funds all chasing investment property and effectively pushing yields down to all-time lows, although these yields are still above those paid by most banks worldwide for cash.
"These sales are reflective of what is proving to be an international property boom. Globally, the continuation of low interest rates is driving investors into commercial real estate, one of the only asset classes to still offer attractive returns."
This demand is helped by the fact that compared to many offshore markets in the Asia Pacific, New Zealand offers excellent tax efficiency with no stamp duty and land tax charged to landholders, adds Whillans.
The senior analyst for Whillans Realty Group, Brendan Keenan, says real estate markets globally are witnessing a recalibration of investment returns and in mature markets, like Hong Kong and Singapore, prime office yields are beginning to dip below 3 per cent.
"For institutional investors, including pension funds, insurers, and sovereign wealth funds (which rely heavily on fixed-income securities), low corporate and sovereign bond yields and now negative interest rates are playing havoc with investment portfolios.
He cites German consumer goods producer Henkel, as an example. Henkel last month sold 500 million euros worth of negative corporate bonds with a two-year maturity at a -0.05 per cent yield.
"In effect, investors are locking in guaranteed losses," he says.
"Pension funds and insurers require certain return thresholds to meet their long-term funding obligations. A pension fund will need a set rate of return to fund retirement for its members, while an insurance company uses its returns to cover claims.
"In order to meet their long-term obligations, these investors have to look at much riskier assets to offset the lower returns offered by fixed-income securities. In turn, fund managers are reassessing their asset allocation models and reweighting in favour of commercial real estate. With a wave of capital chasing commercial property, values are rising around the globe.
"In New Zealand, we are seeing this wave of capital materialise in the form of a booming syndication industry, rising local real estate investment trust (REIT) values, and aggressive plays by high-net-worth privates. Offshore pension and sovereign wealth funds have also been quietly acquiring stakes in some of New Zealand's most prized and coveted commercial property assets."
A current example, says Whillans, is the Westfield WestCity shopping centre in Henderson.
Both Whillans Realty Group and joint marketing agent McVay Realty (Sydney) have seen strong offshore inquiry that could see the shopping centre sell well above price expectations.
"Expressions of Interest closed on October 20 and we are working with several local and offshore parties," says Whillans.
Following sales this year, off-shore investors have expressed their desire for better yields and more affordable property on the world stage.
Queen St's second largest freehold landholding, 450 Queen St, along the city's "golden commercial mile" was sold for $39 million on a 6 per cent yield, by Whillans sales agent Henry Thompson. With over 55m of frontage to Queen St and additional road frontage to Turner and Waverley Streets, the property is on 4234sq m of prime development land.
Thompson says the purchaser was attracted to both the yield and the property's development potential. Built in two stages, 450 Queen St delivers 9571sq m of lettable area with secure parking for 175 cars.
The property at 92 Albert St, sold for $36m. Equivalent to $3162 per sq m, this 15-level office tower, with a two-level retail plaza, was 84 per cent occupied, says sales agent Kathy Ying, of Whillans.
The building was completed in 1988, substantially refurbished in 2008 and was awarded a 4-star green rating by the NZ Green Building Council.
It sits on a 1344sq m freehold site and offers a total building area of 11,380sq m, 722sq m floors and 25 parking spaces. Tenants include Alcatel Lucent, FE Investments, Media Design School and New Zealand Wine Cellars.
Keenan says the increase in offshore buyers has had a definite effect on Auckland's CBD office market, "with new office supply the only thing that has tempered what has otherwise been one of the hottest office markets in decades.
"Despite this minor upturn in vacancy rates, we believe the market is reaching a state of equilibrium where new supply will match tenant demand, allowing vacancy levels to remain stable over the next five years." he says.
Offshore pension and sovereign wealth funds have acquired stakes in assets like the Henderson Westfield WestCity shopping centre.
Historically low interest rates worldwide are fuelling a demand for New Zealand's commercial and industrial investment property, with offshore investors chasing higher yields, says Whillans Realty Group director Bruce Whillans.
He says the company has had one of the busiest years in listing and selling large commercial holdings, and the evidence that they are being hunted down by offshore buyers is compelling.
"Never before have I experienced the current level of offshore enquiry, with private investors, fund managers and sovereign funds all chasing investment property and effectively pushing yields down to all-time lows, although these yields are still above those paid by most banks worldwide for cash.
"These sales are reflective of what is proving to be an international property boom. Globally, the continuation of low interest rates is driving investors into commercial real estate, one of the only asset classes to still offer attractive returns."
This demand is helped by the fact that compared to many offshore markets in the Asia Pacific, New Zealand offers excellent tax efficiency with no stamp duty and land tax charged to landholders, adds Whillans.
The senior analyst for Whillans Realty Group, Brendan Keenan, says real estate markets globally are witnessing a recalibration of investment returns and in mature markets, like Hong Kong and Singapore, prime office yields are beginning to dip below 3 per cent.
"For institutional investors, including pension funds, insurers, and sovereign wealth funds (which rely heavily on fixed-income securities), low corporate and sovereign bond yields and now negative interest rates are playing havoc with investment portfolios.
He cites German consumer goods producer Henkel, as an example. Henkel last month sold 500 million euros worth of negative corporate bonds with a two-year maturity at a -0.05 per cent yield.
"In effect, investors are locking in guaranteed losses," he says.
"Pension funds and insurers require certain return thresholds to meet their long-term funding obligations. A pension fund will need a set rate of return to fund retirement for its members, while an insurance company uses its returns to cover claims.
"In order to meet their long-term obligations, these investors have to look at much riskier assets to offset the lower returns offered by fixed-income securities. In turn, fund managers are reassessing their asset allocation models and reweighting in favour of commercial real estate. With a wave of capital chasing commercial property, values are rising around the globe.
"In New Zealand, we are seeing this wave of capital materialise in the form of a booming syndication industry, rising local real estate investment trust (REIT) values, and aggressive plays by high-net-worth privates. Offshore pension and sovereign wealth funds have also been quietly acquiring stakes in some of New Zealand's most prized and coveted commercial property assets."
A current example, says Whillans, is the Westfield WestCity shopping centre in Henderson.
Both Whillans Realty Group and joint marketing agent McVay Realty (Sydney) have seen strong offshore inquiry that could see the shopping centre sell well above price expectations.
"Expressions of Interest closed on October 20 and we are working with several local and offshore parties," says Whillans.
Following sales this year, off-shore investors have expressed their desire for better yields and more affordable property on the world stage.
Queen St's second largest freehold landholding, 450 Queen St, along the city's "golden commercial mile" was sold for $39 million on a 6 per cent yield, by Whillans sales agent Henry Thompson. With over 55m of frontage to Queen St and additional road frontage to Turner and Waverley Streets, the property is on 4234sq m of prime development land.
Thompson says the purchaser was attracted to both the yield and the property's development potential. Built in two stages, 450 Queen St delivers 9571sq m of lettable area with secure parking for 175 cars.
The property at 92 Albert St, sold for $36 million. Equivalent to $3162 per square metre, this 15-level office tower, with a two-level retail plaza, was 84 per cent occupied, says sales agent Kathy Ying, of Whillans.
The building was completed in 1988, substantially refurbished in 2008 and was awarded a 4-star green rating by the NZ Green Building Council.
It sits on a 1344sq m freehold site and offers a total building area of 11,380sq m, 722 sq m floors and 25 parking spaces. Tenants include Alcatel Lucent, FE Investments, Media Design School and New Zealand Wine Cellars.
Keenan says the increase in offshore buyers has had a definite effect on Auckland's CBD office market, "with new office supply the only thing that has tempered what has otherwise been one of the hottest office markets in decades.
"Despite this minor upturn in vacancy rates, we believe the market is reaching a state of equilibrium where new supply will match tenant demand, allowing vacancy levels to remain stable over the next five years." he says.
What the new valuations mean for buyers and sellers in the city.