International Investors Actively Eyeing New Zealand Property
International Investors Actively Eyeing New Zealand Property
15 June 2013
Auckland, 15 June 2013 - International investors across a range of areas and profiles are showing strong interest in NZ commercial property, according to CBRE.
The company, which is the world’s largest commercial real estate services and investment firm, says that in the first quarter of 2013 it has seen the highest levels of Singaporean interest in New Zealand in a decade, with interest also active across Asia and the Middle East.
Brent McGregor, Managing Director of CBRE New Zealand, says: “We are seeing an increase in enquiries from right across Asia and the Middle East. We attribute this increase to a number of factors, including increased investment mandates for New Zealand properties, low interest rates and favourable comparative returns. Our market is attracting quality international attention.”
Hot on the heels of a week-long series of meetings in Singapore with investors, New Zealand Trade and Enterprise, banks and major lending institutions, CBRE’s executive team is now looking to Q3 & Q4 2013 and beyond, as international investment looks set to keep flowing into the Kiwi economy.
“Singaporean investors were very active in New Zealand in the 1980s and now we are seeing a major renewal in that area, mainly in Auckland and Wellington property due to the larger size requirements. Interest and demand are on a strong trajectory which is creating opportunities for property owners across the upper levels of the spectrum in New Zealand.”
McGregor says that there is an increasing variety in the type of investors looking at New Zealand: “Interest is coming from a range of groups, including high net worth individuals based in Asia and the Middle East, as well as global sovereign wealth funds, property funds and institutions.”
This is backed by CBRE’s research, which shows that while private New Zealand-based investors remain the largest buyers of commercial property in New Zealand, their market dominance is decreasing which is signalling a broader investor base.
“Recent tradition would have Australians as the major foreign investors in New Zealand,” says McGregor. “However, in the last 12 months we have seen more Asian private capital and funds looking at market entry here, which is an interesting shift in dynamics and possibly a sign of the times.
“The diversity in investors highlights an interesting trend: New Zealand is continuing to gain prominence around the world as a stable and strategic investment location for both private and institutional investment. New Zealand’s positive reputation has been further solidified now that China is our largest trading partner.”
During the past 12 months, by volume, 20% of investment grade New Zealand commercial property of over $20m in value has been sold to offshore parties.
“Late last year, CBRE’s Capital Markets team worked with an Asian investment fund operated by Credit Suisse, who paid NZ$75 million for a half interest in one of Wellington's biggest government buildings, the Vogel Centre,” says McGregor. “CBRE’s Capital Markets, International and Institutional Investments teams represented and acted on the buy side for Credit Suisse in what was their first New Zealand property deal.
“This deal is indicative of the types of property that international investors are purchasing, from $20 million in value right up to $200 million properties. These are mainly office, but hotel, industrial and retail assets are also garnering a healthy amount of attention.
“Prime office is always attractive to offshore investors, as are regional and sub-regional shopping centres and long lease industrial properties.”
McGregor says that while H1 2013 didn’t see a huge number of local deals with Asian based buyers, the high level of interest is indicative of a willingness from these investors to transact at good pricing.
“2013 is shaping up to see increasing numbers of international transactions, as illustrated by King Khoo, who migrated from Malaysia to New Zealand 12 years ago, recently purchasing Auckland Council’s North Shore headquarters for $71m.”
McGregor says: “When you consider the sheer weight of capital available in South East Asia and the fact that yields in Singapore are very low comparatively, New Zealand is an attractive investment destination in terms of potential returns.
“In addition, the numbers of mandated enquiries – where parties are instructing and/or authorising for investments to be made in New Zealand – have at least doubled over the last 12 months. This indicates a strong level of demand from institutional and syndicated groups offshore.”
“Some of the interest in New Zealand is partly due to a wider Australasian investment mandate and spill over from Australia, although there are also standalone New Zealand mandates creating a more specific desire for Kiwi properties.
“International investors can’t always secure the right sort of property in Australia, which creates tangible opportunities for the local market. New Zealand can benefit from the lack of suitable stock across the ditch, so it’s crucial to have the right type of property available to service international interest.”
McGregor adds that New Zealand is also a market that is easy to understand, with a relatively stable economy and transparent legal system.
“We have a global reputation as being very fair and business-friendly. There are other practical factors that sweeten the prospect of doing business here too: for example it’s close, globally-speaking, with many Asian cities being a relatively short plane trip away.”
“However, solid property fundamentals ultimately play a key role in New Zealand’s appeal. International investors are interested in our yield spread, low interest rates and clean tax structures. Offshore investors also like the English-speaking, safer operational environment on offer. In addition, the Singapore dollar and New Zealand dollar are closely correlated right now, so currency and hedging risks are perceived as low. When those factors combine, we’ve got a compelling backdrop to attract global investment.”
“New Zealand is performing well in global terms with a strong agricultural production and export base. Overall, the country is well positioned to benefit from growth in Asia and to capitalise on opportunities further afield in the Middle East and Europe.”
“Historically, more deals are done in the second half of the year, so we expect to see a reasonable number of deals with offshore parties in H2 2013,” says McGregor.
“Our research shows that H2 2012 saw an increase in transactions over $50m from just one such transaction in 2011 to 16 transactions in 2012. Over the past four years to the end of 2012, the median commercial property transaction price has also been increasing, so conditions are certainly looking up.”
McGregor adds that although local yields have firmed recently, they still present attractive buying propositions in a global context, which partially drives the mandated enquiries CBRE is seeing.
“One of the key challenges we are facing is that there are only 80 buildings in New Zealand that are worth more than NZD $50 million at present. These include office and industrial buildings as well as major retail centres.
“Our research also indicates that a number of larger properties and portfolios will soon come on the market, and we expect there will be strong investor appetite for most of the new listings, with interest coming from a mix of offshore and onshore parties, both institutional and private.
“My message into the local market is that New Zealand is a highly attractive place to invest in. Assets here with the right characteristics are extremely sought after. Because the number of prime investment properties is relatively limited, we expect that prices will continue to firm if these levels of bidder interest are maintained.
“Some international groups with greater access to capital are also looking at large scale development opportunities, such as those presented in Christchurch, so we are advising our clients and our contacts overseas to be on the lookout for opportunities as they arise, because demand is only set to grow. We suggest that upper tier property owners looking to make some moves this year and next should get into action and make the most of this opportune environment.”
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2012 revenue). The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.