NZ burgeoning commercial property market stokes development

Wednesday 12th November 2014

New Zealand commercial property prices and sales have been increasing in the past six months, boosted by interest from foreign investors, which in turn has ignited appetite for development in a sector which has been lacklustre since the collapse of the mezzanine finance industry in the mid 2000's.

Retail, industrial and office building values are rising at an annual 7.8 percent pace, led by a 16 percent lift in office space, and are worth about $180 billion, supporting the prospect of a sharp increase in sales this year, according to the Reserve Bank's six-monthly financial stability report. Strong tenant demand has underpinned that capital growth, and stoked developers' appetite to return to the commercial sector after funding dried up when the finance company sector collapsed.

"Development activity is beginning to increase, particularly in the office sector, in response to rising activity and values," the bank said in its report. "With the lack of mezzanine finance reducing leverage available for property development, this supply pipeline is mostly being funded through wealth private equity investors or LPTs, with significantly more equity than their counterparts prior to the GFC (global financial crisis)."

The attraction of high yields has lured international investors to New Zealand commercial space, with Singaporean wealth fund GIC recently buying into the local Westfield mall portfolio, and also co-investing in a planned development in Auckland with Goodman Property Trust.

The Reserve Bank said the development supply pipeline is expected to be smaller than that before the late 1980s crisis and the GFC, and the regulator will be watching for any growing risks within the sector.

BusinessDesk.co.nz

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