2022: the year overseas investors return to New Zealand property
23 Mar 2022
After two years of suppressed overseas investment, New Zealand’s commercial property market is set to open up to the world again. We can expect a surge of activity in coming months once the borders are fully open, and foreign capital is set to make up at least two thirds of acquisition activity this year and next, mirroring 2014 and 2018 levels.
We have already seen this phenomenon take place overseas, and it has begun to happen here; we are already seeing evidence of pent-up demand for investment grade assets in New Zealand, and we expect a significant rebound in office transaction activity in particular this year.
Ten year averages for onshore/offshore transaction volumes reveal that over the last two years offshore investor participation in $20+ million transactions has been significantly lower, at 19% of total volumes in 2020 and 24% in 2021, against a 10-year average of 41%. The 10-year average transaction size for foreign buyers was also significantly greater than for local buyers (at $75m vs $44m).
During 2020 and 2021, $20m+ transactions to foreign buyers dropped by $1.67 billion versus the two years leading into Covid. With the borders closed, it has been just too hard for investors to get here to fully undertake their due diligence. This drop has been only partially offset by local investors, who increased activity to the tune of $880 million over the two years.
When you look at the numbers sector by sector, although the volume and value of office transactions over the past two years was significantly depleted compared to pre-Covid levels, much of the previous investment activity was in big, expensive buildings that suited foreign investment capital, which drove the numbers. This was offset by an increase in industrial transaction activity over the last two years, largely due to the logistics sector playing a big part in the pandemic response.
Recent announcements by Precinct Properties show the ongoing keenness of major offshore players on quality assets in our main markets. With New Zealand’s borders now starting to re-open, office assets are due to attract a great deal more capital investment.
By contrast, after three enormous years of industrial transaction volumes we’re now expecting transaction levels to come off as interest rates bump into industrial cap rates, which are the sharpest of any investment sector. This is unless of course there is a particular growth or repositioning story, which the smartest buyers are looking out for.
We have already seen this phenomenon take place overseas, and it has begun to happen here; we are already seeing evidence of pent-up demand for investment grade assets in New Zealand, and we expect a significant rebound in office transaction activity in particular this year.
Ten year averages for onshore/offshore transaction volumes reveal that over the last two years offshore investor participation in $20+ million transactions has been significantly lower, at 19% of total volumes in 2020 and 24% in 2021, against a 10-year average of 41%. The 10-year average transaction size for foreign buyers was also significantly greater than for local buyers (at $75m vs $44m).
During 2020 and 2021, $20m+ transactions to foreign buyers dropped by $1.67 billion versus the two years leading into Covid. With the borders closed, it has been just too hard for investors to get here to fully undertake their due diligence. This drop has been only partially offset by local investors, who increased activity to the tune of $880 million over the two years.
When you look at the numbers sector by sector, although the volume and value of office transactions over the past two years was significantly depleted compared to pre-Covid levels, much of the previous investment activity was in big, expensive buildings that suited foreign investment capital, which drove the numbers. This was offset by an increase in industrial transaction activity over the last two years, largely due to the logistics sector playing a big part in the pandemic response.
Recent announcements by Precinct Properties show the ongoing keenness of major offshore players on quality assets in our main markets. With New Zealand’s borders now starting to re-open, office assets are due to attract a great deal more capital investment.
By contrast, after three enormous years of industrial transaction volumes we’re now expecting transaction levels to come off as interest rates bump into industrial cap rates, which are the sharpest of any investment sector. This is unless of course there is a particular growth or repositioning story, which the smartest buyers are looking out for.