Property investors present in Christchurch, although H1 deals are down
| 7 September 2020
5 sales totalling $87 million as local private and overseas investors maintain presence
The first half of 2020 has seen a pull-back in commercial property transactions in Christchurch to levels last seen at the beginning of the post-earthquake recovery, CBRE New Zealand’s latest New Zealand Investment MarketView research report shows.
The report details that of the sales above $5 million in value in H1 2020, Christchurch transaction volumes totalled $87 million as a result of 5 properties changing ownership in the period.
The volume and the number of sales decreased to a level last observed in 2013 when the transaction recovery took hold in Christchurch.
The report reveals that in Christchurch:
Office sales dominated at 79% of the market, with industrial sales at 14% and retail at 7%. Two office buildings were sold for the total of $69 million, two industrial for $12 million and one retail building for $6 million
Activity was dominated by local investors, in the form of private investors and institutions, with one purchase by an overseas private investor, showing that overseas purchasers are present despite the lockdown.
Tim Rookes, Managing Director for CBRE Christchurch, says, “Clearly the lockdowns have had an impact on activity, but after going back down the levels we have seen renewed investor interest in Christchurch, and particularly in high quality assets. This is driven by yield arbitrage between Auckland and Christchurch driving investment pressure into our city, in turn driving returns for vendors and creating significant liquidity in the market.
“The continued low interest rate outlook is also fuelling a very active property syndicator space. However right now we are seeing private investors leapfrog the previously dominant syndicators, perhaps due to their autonomous decision making. It has certainly levelled the playing field. It is not surprising with the quality of our Christchurch investment stock that we are increasingly the investment destination of choice. However, now more than ever tenant covenant is paramount.While activity remains, the basics of quality tenant covenant, long term lease and a good location remain the yard stick – particularly tenant covenant.”
Nationally, CBRE notes that transaction volumes totalled $925 million as a result of 44 $5+ million value properties changing ownership. Industrial sales led the market, and private investors were the most prominent purchasers and sellers of NZ commercial property, followed by institutions and syndications.
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.
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 for 6 years after 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 that 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.”
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