Debt markets and capital depth support transactions at 2011 level in the first half of 2020
The first half of 2020 has seen a pull-back in commercial property transactions down to 2011 levels, although not as low as the years following the Global Financial Crisis, as revealed by CBRE New Zealand’s latest New Zealand Investment MarketView research report.
The report details that of the sales above $5 million in value in H1 2020:
- Transaction volumes totalled $925 million as a result of 44 $5+ million value properties changing ownership
- Industrial sales lead the market, with 3 sales above $50 million and one above $100 million.
- Private investors are the most prominent purchasers and sellers of NZ commercial property, followed by institutions and syndications
- Offshore investment in NZ property is net positive and dominated by Asia-Pacific parties, with net flow of funds strongly positive
- Auckland saw 35 sales in the period, totalling $703 million (78% of total volume nationally). Wellington saw 3 transactions over $5 million, totalling $115 million, and Christchurch had 5 sales totalling $87 million.
Brent McGregor, Executive Chairman of CBRE NZ, says that the first half of 2020 was without doubt the most uncertain environment for some time, although unlike the GFC period debt markets have been more active and a low interest rate environment has enabled trades to proceed.
“Although volumes have dropped from recent 6 monthly averages, with nearly $1billion in deals in H1 2020, activity was above the half year averages following the previous 2007 peak. Capital depth remains strong and purchasers are adapting quickly to figure out ways of deploying capital, even with travel restrictions in place.
“Investor priorities have shifted significantly, with the most active groups looking to secure longer lease, credit rated assets and for these pricing remains similar to or firmer than pre-lockdown levels. However, secondary assets with pending vacancies have proven harder to move.
“Global investors with New Zealand ambitions are seeking out local asset management relationships, presenting an exciting opportunity for local funds management growth”.
Zoltan Moricz, Senior Director of Research for CBRE New Zealand, says: “In the context of an extended period of market paralysis during the Q2 lockdown, these results are probably better than might be expected.
“In reality the commercial property market has been actually pretty resilient. Our research shows that the Asia Pacific region is more resilient overall than European and US markets, and New Zealand property is providing an attractive destination for institutional investor ‘dry powder’ looking for yield. We see continued activity from offshore purchasers, which may lift further on the basis of investors finding new ways to do cross border transactions given the extended global limitations on travel.
“The numbers show a large market share of industrial property changing hands, although the timing of larger deals has influenced composition. The second half of the year may look different, with some of the office and retail assets that just CBRE is bringing on the market.
“Additionally, we are seeing activity across institutional, syndicate, wholesale and private buyer sectors of the market. Previous downturns have seen a big net transfer of assets from institutions to privates, but we will probably not see this in this cycle, given the different underpinnings of the current market relative to say the GFC.”
