Real estate boss optimistic about commercial property in 2018

Monday, 22 January 2018

Some off-plan buyers from Botanica Heritage apartments saved $300,000 by getting in early as off plan buyers, Synnott says.

New Zealand's commercial property market looks like it's playing catch-up from the election slowdown, Colliers' boss says.

Colliers International New Zealand chief executive Mark Synnott said industrial, office, and tourism property sectors were showing promising signs of growth but restrictions on foreign buyers might reduce the pool of buyers for the priciest properties.

Mark Synnott, the chief executive of Colliers International says 2018 shows 'promising signs of growth'.

Synnott said the company expected sales volumes to trend upwards as vendors looked to offload the significant amount of stock that remained unsold during the latter months of 2017.

Those selling included large numbers of corporate owner-occupiers who then arranged to lease back their properties, freeing up capital to invest in the business, he said.

Precinct Properties' Commercial Bay - a $681 million Auckland development - will open its first stores in mid-2018.

Synnott predicts Queenstown Council has started a domino effect in regulating Airbnb.

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Synnott also said 2018 would be quality-focused for significant institutional and private investors, whom he predicted would continue to offload 'non-strategic' assets.

'The room for further yield compression is small, but still possible in prime assets.'

'However, the major contributor to capital growth will continue to be rental growth, driven by record low vacancies and new supply not meeting demand.'

Synnott expected New Zealand to continue to attract offshore investors, citing ongoing net immigration, GDP growth and little likelihood of large interest rate rises.

'However, the government's proposed foreign ownership restrictions are likely to create uncertainty until there is greater clarity about what types of assets will be caught in the Overseas Investment Office's net.'

Synnott said he expected the uncertainty to have the biggest impact at the top end of the market, 'where the pool of local buyers is shallow'.

'Of the 12 Auckland commercial property transactions worth $50 million or more last year, only one was sold to a local buyer.'

Tourism would also drive sales for the commercial property market, especially for hotels and retail.

'Visitor arrivals are likely to top 4 million this year, after a record 3.7 million arrivals in the year to October 2017.'

Hotels have been near full capacity over the summer, though the sector's predicted shortfall of 4526 three- to five-star rooms by 2025 was amended in November to 2390, according to a New Zealand Trade and Enterprise initiative.

Despite this, Synnott said undersupply continued to be the hotel sector's biggest constraint, which led to investors buying up residential units and renting them out through Airbnb in response.

'We expect a number of councils will follow Queenstown's lead in introducing bylaws to limit Airbnb's negative impacts – notably residential rent increases driven in part by Airbnb's pressure on rental housing supply and affordability.'

Synnott said the industrial sector would continue to see rising rents and land value as under supply worsens.

'Demand for industrial space will increasingly be driven by the growth of online retail,' he said.

In the office sector, new supply was failing to meet pent-up demand, he said.

'Rents will continue to rise from an already strong base – we are aware of rents in excess of $500 per square metre being regularly achieved in 151 Queen St in Auckland's CBD, for example.'

In retail, online competition would continue to be a challenge, but it would be offset somewhat by the growth of food and beverage retail, he said.

He earmarked the residential apartment sector to continue to grow, driven by supply pressures, especially in Auckland, despite the completion of many of the apartment projects launched there two to three years ago.

Investors who got in on the boom early and bought apartments off the plans stood to benefit from substantial capital gains, Synnott said.

'We are aware of apartments in Botanica selling for between $200,000 to $350,000 more than their purchase price – an increase of 25 to 30 per cent over a two-and-a-half-year period.'