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New Zealand Research Report | May 2019 | Colliers International Research1
May 2019
International AttractionOffshore investment activity in our office sector has
boosted overall transaction activity. Our underlying
fundamentals relative to offshore markets are a key
driver. We compare vacancy rates and yields in
Sydney with Auckland and Wellington to showcase
the reasons behind the latest surge in international
attraction.
In 2017 and 2018, an aggregated NZD$3.2 billion of
Auckland office transactions for property over $50m
was recorded. This was a stand-out for two reasons.
Auckland’s flagship office sector was receiving a
significant amount of interest, and offshore investors
were dominating activity with 85% of all purchases.
While the latest surge in activity has been a standout,
activity has been building for several years. It was
2014 when offshore interest started to take-off, which
many will remember is also the year we were given
‘rock-star’ status.
In 2014, Canadian Pension Plan Investment Board
(PSPIB) bought a NZD$1B portfolio from AMP.
Singaporean investment fund GIC entered the
market, purchasing 49% of five Scentre Group
(Westfield) shopping centres for just over NZD$1B.
GIC later went on to buy 49% of Goodman Property
Trust’s VXV3 portfolio with OIO approval in January
2015.
As the middle chart shows, Sydney and Auckland
CBD office vacancy rates were starting to align in
2014, the first time since the GFC. However, the
bottom chart shows that Sydney and Auckland office
prime yields were approximately 130 basis points
apart. To offshore investors, our ‘rock-star’ economy
and attractive purchasing represented good buying,
and as the two charts show, similar market
characteristics remain.
In 2015 and 2016 we saw higher levels of domestic
High Net Worth and syndication activity occur
amongst global changes in conditions through the US
election and Brexit referendum. The Asia Pacific
property sector remained relatively unaffected, and it
set the foundations for another surge in activity from
offshore investors scouring the New Zealand market
for more opportunities.
CBD Office Overall Vacancy Rates
Source: Colliers International Research
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
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Auckland Wellington Sydney
4%
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10%
Dec-9
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8
Auckland Wellington Sydney
CBD Office Prime Yields
Auckland $50m+ Office Transactions – 2017 & 2018
85%
15%
Offshore Domestic
Offshore
BUYERS$2,745,980,000
Domestic
BUYERS$477,656,649
Total $3,223,636,649
New Zealand Research Report | May 2019 | Colliers International ResearchNew Zealand Research Report | May 2019 | Colliers International Research
New Zealand Key Economic Indicators – May 2019
Dec-18
(yr rate)
Dec-18
(qtr rate)
Sep-18
(qtr rate)
Q-o-Q
Change
Dec-17
(yr rate)
Y-o-Y
Change 2020F* 2021F* 2022F*
GDP Growth 2.3% 0.6% 0.3% 0.3% 3.4% -1.1% 2.4% 2.6% 2.6%
Current Account (% of GDP) -3.7% NA NA NA -2.9% -0.8% -3.2% -3.4% -3.4%
Mar-19
(yr rate)
Mar-19
(qtr rate)
Dec-18
(qtr rate)
Q-o-Q
Change
Mar-18
(yr rate)
Y-o-Y
Change 2020F* 2021F* 2022F*
CPI Inflation 1.5% 0.1% 0.1% 0.0% 1.1% 0.4% 1.8% 1.9% 1.9%
Net Migration Gain (000's) 39 8 9 -1 49 -10 24 17 17
Retail Sales (ex-auto) 4.0% -0.2% 2.3% -2.5% 4.4% -0.4% 4.6% 5.1% 5.1%
Unemployment Rate 4.2% 4.2% 4.3% -0.1% 4.6% -0.4% 4.1% 4.1% 4.1%
Jan-19
(yr rate)
Dec-18
(yr rate)
M-o-M
Change
Jan-18
(yr rate)
Y-o-Y
Change
10 Year
Average2020F* 2021F* 2022F*
Tourist Numbers Growth 4.3% 4.1% -0.3% 2.3% 1.9% 5.4% 4.5% 4.0% 4.7%
Official Cash Rate 1.75% 1.75% 0 bps 1.8% 0 bps 2.40% 1.25% 1.50% 1.50%
90 Day Bank Bill Rate 1.9% 2.0% -7 bps 1.9% 3 bps 2.6% 1.5% 1.6% 1.6%
10 Year Government Bond 2.3% 2.5% -12 bps 2.9% -55 bps 3.7% 2.7% 2.9% 2.9%
Floating Mortgage Rate 5.9% 5.9% 0 bps 5.8% 1 bps 6.0% 5.4% 5.4% 5.4%
3 Year Fixed Housing Rate 5.1% 5.1% 0 bps 5.3% -23 bps 6.1% NA NA NA
Consumer Confidence 122 122 0% 127 -4% 120 NA NA NA
NZD vs US 0.68 0.68 0% 0.73 -6% 0.74 0.66 0.65 0.65
NZD vs UK 0.54 0.54 -1% 0.53 2% 0.50 0.49 0.47 0.47
NZD vs Australia 0.95 0.95 -1% 0.91 4% 0.86 0.88 0.86 0.86
NZD vs Japan 77 77 0% 81 -5% 74 74 73 73
NZD vs Euro 0.60 0.60 0% 0.59 1% 0.59 0.61 0.62 0.62
Source: NZIER, Colliers International Research
*March year forecast
2
Since this time, we have had investment from the likes of
Roxy-Pacific, KKR, Investec and perhaps most significantly,
Blackstone, which purchased the VXV3 leasehold
commercial property portfolio for $635 million at a 6.6%
yield. This seemed to provide New Zealand with a global
tick of approval with more offshore purchasing activity from
the likes of Invesco and PAG Asia, as well as others. The
culmination of the five years of activity since 2014 has seen
billions of dollars of New Zealand commercial property
transactions take place and has significantly increased the
depth of our transactional market. It has also helped fund a
number of new development opportunities for our listed
property sector companies.
While we expect conditions to remain in place for offshore
purchasers to find attractive purchasing options, especially
in Auckland, we note there may be higher levels of interest
elsewhere as well.
Until recently, Wellington’s office sector has experienced
much higher vacancy rates and a small yield gap on
Auckland. Offshore purchasing activity has been evident
with the likes of Investec in 2017, but not as significant.
However, the Wellington CBD office vacancy rate is similar
to Auckland and Sydney now, and the most aligned since
2011. With a positive yield gap, there could be some greater
interest in Wellington’s office sector in 2019. Precinct
Properties’ marketing of two major office premises, Pastoral
and Mayfair Houses, will be an excellent future indicator of
offshore interest for Wellington.
Commercial Interest Rate Guide
Date3 Year Term
(Indicative Borrowing Rate)
Feb-18 4.93%
Mar-18 4.91%
Apr-18 4.90%
May-18 4.98%
Jun-18 4.90%
Jul-18 4.78%
Aug-18 4.83%
Sep-18 4.64%
Oct-18 4.62%
Nov-18 4.62%
Dec-18 4.71%
Jan-19 4.47%
Feb-19 4.45%
Mar-19 4.47%
Apr-19 4.15%
May-19 4.06%
Source: ANZ, Colliers International Research
Note: the lending rate quoted in the table is not
necessarily what you will be offered, and should be
regarded as indicating medium term trends.
New Zealand Research Report | May 2019 | Colliers International Research
Office
The total floor area consented for office related buildings
across New Zealand was approximately 178,000sqm for
the year to March 2019, well below the historical average of
around 223,000sqm. The three preceding years
aggregated to nearly 889,000sqm of consented floor area,
which was comparable to construction activity in 2007 from
2009.
A slowdown in space expected to be constructed over the
next couple of years based on lower levels of consented
space does little to resolve the historical lows in availability
in Auckland and Wellington. While we do expect further
supply to trickle through overtime, this will only provide a
modest lift to the existing total stock.
Demand outweighing supply will likely translate into further
escalations in rental figures and assist investment yields to
firm further over 2019, albeit modestly in comparison to
previous years.
Retail
NZ Retail Radar’s quarterly survey for March shows survey
respondents expect challenging times ahead, with 55 per
cent of retailers stating they are not meeting sales targets,
an increase of 11 per cent from the previous quarter.
Furthermore, 36 per cent of retailer’s do not expect to meet
targets in the succeeding quarter.
However, the latest ANZ-Roy Morgan survey shows
consumer confidence steady and near historical averages,
with a slight bump of 1 point to 123 in April. This is echoed
by a positive gain of 8 points for respondents believing now
is a good time to buy a major household item (net 46%).
Canterbury marked the greatest increase in consumer
confidence up 5 points. South Island outperformed, up 10
points to 125.
Industrial
All Auckland precincts will likely experience rent increases
in the next few years as a result of the current demand and
supply imbalance. However, we can expect some locations
to face higher rent rises than others.
Historical analysis shows it is likely to be the established
industrial precincts in the former Auckland and Manukau
City areas. As shown in the bottom right chart, these
precincts have experienced higher rent rises in the past five
years compared to other precincts, typically 25% or more.
Despite the higher rents, we expect these precincts to
remain extremely popular. Tenants are likely to accept
higher rent rises over ongoing frustrations of time delays
and rising delivery costs from travelling long distances
around Auckland’s increasing rates of traffic congestion,
which shows no signs of moderating soon.
3
Combined is a ratio of 80:20 warehouse to office
Source: Colliers International Research
Office Building Consents by Floor Area
Source: Colliers International Research
*Includes office, administration and public transport buildings
ANZ-Roy Morgan Consumer Confidence Index
Source: ANZ, Colliers International Research
Combined Prime Industrial Net Face Rents
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115
125
135
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Index
32%32%
28%27%26%25%25%
23%23%
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200,000
250,000
300,000
350,000
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1999
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2007
2009
2011
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2015
2017
2019
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New Zealand Research Report | May 2019 | Colliers International ResearchNew Zealand Research Report | May 2019 | Colliers International Research
Source: Colliers International Research
*Combination of industrial office & warehouse at a ratio of 20:80.
Note: The Wellington CBD office gross rents and yields annual percentage change has been influenced by the introduction of a Premium grade.
4
Annual Market Indicator Review – Q1 2019
Recent Commercial Property Sales
Alan McMahon
National Director
Strategic Advisory
David White
Director
Strategic Advisory
For more information contact:
Chris Dibble
Director
Research & Communications
Josh Lee
Research Analyst
Adrian Goh
Research Analyst
Emily Duncan
Research Analyst
Disclaimer: Whilst all care has been taken to provide reasonably accurate information, Colliers International cannot guarantee the validity of all data and
information utilised in preparing this research. Accordingly Colliers International New Zealand Ltd, do not make any representation of warranty, expressed
or implied, as to the accuracy or completeness of the content contained herein and no legal liability is to be assumed or implied with respect thereto.
© All content is Copyright Colliers International New Zealand Ltd, Licensed REAA 2008 and may not be reproduced without expressed permission.
Chris Farhi
Director
Strategic Advisory
Caity Pask
Senior Analyst
Strategic Advisory
Vernon Sequeira
Analyst
Strategic Advisory
Colliers International
Level 27, SAP
Tower
151 Queen Street
Auckland
+64 9 358 1888
3 Monahan Road
Auckland | $12,680,000 | 5.25%
Property Sector
Prime Rents
(% Change)
Prime Capital Values
(% Change)Vacancy Rate
12-Months to Mar-19 12-Months to Mar-19 2017 2018
Office Net Face Based on Net Face Overall (December)
Auckland CBD 1.5% 9.9% 5.9% 5.2%
Office Gross Face Based on Net Face Overall (December)
Wellington CBD 4.4% 3.7% 7.4% 6.2%
Office Net Face Based on Net Face Overall (September)
Auckland Metropolitan 3.2% 13.2% 5.1% 6.7%
Industrial* Net Face Based on Net Face Overall (February)
Auckland 4.5% 15.3% 2.1% (2018) 1.5% (2019)
Industrial* Gross Face Based on Net Face Overall (November)
Wellington 9.6% 11.0% 2.1% 1.5%
Industrial* Net Face Based on Net Face Overall (September)
Christchurch 0.0% 7.5% 1.9% (2016) N/A
Retail Net Face Based on Net Face Overall (December)
Auckland CBD 0.0% 0.0% 3.4% 3.9%
Retail Gross Face Based on Net Face Overall (December)
Wellington CBD 3.0% 3.9% 6.8% 6.1%
12 Andrew Baxter Drive
Auckland | $8,050,000 | 5.28%
43-47 Stonedon Drive
Auckland | $8,000,000 | 5.77%