Wellington, 15 February 2016 - The stage is set for Wellington’s commercial property market to have a big 2016. The significant multinational investor interest that led to record 2015 sales of Wellington CBD office buildings has continued into 2016, according to Matthew St. Amand and Bill Leckie of CBRE Wellington.
“2015 saw more CBD office sales of over $15+ million in value than at any time in the history of Wellington,” says St. Amand. “The bulk of these properties saw values in excess of $20 million, and some were in the mid-$80 million zone. Of the 15 sales last year, we successfully brokered all bar one of them, selling more than $550 million of property. This is a significant change from 2013 in which there was only one sale over $10 million.”
St. Amand says that all of the 2015 sales were to private buyers, local and offshore. “The offshore buyers came from Singapore and Germany, with one property, 133 Molesworth Street, bought by Perth-based syndicate Ascot for $80 million. Although Australians are not necessarily focused on the Wellington market, it is getting back on their radar.”
Leckie says that the main motivators for the high levels of top-end market activity last year were low interest rates and a low NZ dollar. “These two factors made it easier for offshore parties to buy New Zealand assets. Also, the relative yield offerings in our market were attractive on an Asia-Pacific basis.
“Equally, the Auckland market had fewer buying opportunities and compressed yields relative to property in Wellington, so interest focussed here. At the same time, investor certainty around seismic ratings and government leasing programmes has been growing: the macro dynamics have become better understood in the market. This created significant levels of buyer demand from ‘maiden’ first-time buyers in Wellington.
“During 2015 a number of sovereign funds not previously expressing interest in Wellington over previous years have been regular visitors, and Wellington is becoming increasingly known as a hot investment destination.”
St. Amand says that as 2016 gets underway, market sentiment continues to be strong, although tempered by the underlying current that the global economy could impact on the market.
“The market is confident, continuing the confidence of the second half of 2015. Evidence of that is shown in the number of significant funds visiting Wellington already this year looking for stock. Buyer demand is high.
“For Wellington, challenges in 2016 will be to do with the availability of stock and whether or not any unforeseen global events have an impact on liquidity and funding costs. This was referred to by the Reserve Bank Governor in his OCR announcement on 28 January, when he said that uncertainty about the strength of the global economy has increased, financial market volatility has increased, and global inflation remains low.
“Even though the governor expects NZ GDP growth to increase in 2016 due to ‘continued strong net immigration, tourism, a solid pipeline of construction activity, and a lift in business and consumer confidence’, he did say that there are many risks out there on the prospects for global growth, particularly around China, global financial market conditions, dairy prices, net immigration, and pressures in the housing market.”
Leckie says that some owners are therefore viewing now as an attractive time to sell.
“Investors are rightly recognising that funding has never been cheaper, and the banks are lending aggressively. There is a healthy spread between the cost of funds and the yields on offer. In fact, the spread has never been more attractive than now, particularly for many international investors. So it is also a good time to buy to take advantage of the cost of funds–yields spread.
“In terms of sectors that are hot right now and those that are likely to heat up later in the year, office is still commanding all the headlines right now. The larger format retail offerings in the Petone area are also drawing investment on back of some longer-term lease commitments from national grade tenants, so that market is growing and will encourage strong continued buyer interest.
“The balance to be struck therefore is all about whether Wellington building owners might wait to possibly squeeze another 25 basis points out of a sale price later in the year, but you run the risk of unforeseen events overtaking you.
“Given CBRE did the bulk of transactions in 2015, we anticipate that our track record and knowledge will enable us to continue to facilitate the investment demand flow in Wellington. We’re well set up as a local and Asia-Pacific team, so we can navigate well the requirements between vendors and purchasers.”
ABOUT CBRE
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 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 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.
