Colliers International’s latest Capital Market Report indicates that the very strong commercial property market is about to enter a new pattern of activity as opposed to approaching a peak.
Last year was an extremely buoyant market generated by local buyer activity and was the second highest year on record for commercial property sales – with a total of $7.3 billion.
This result was only eclipsed by the previous year, 2014, with $10.1 billion – an outlier result on the back of a precedent setting number of purchases by offshore funded buyers.
These last two years of settled sales activity in New Zealand’s commercial property market were in fact stand-outs of the last two decades, and both years’ activity and performance levels are shaping the outlook for 2016 and beyond.
This year is already proving a pivotal one in its own right.
There is already $2 billion of commercial sales likely to settle in 2016 – made up of properties worth $20 million or more. In adding to this the voracious appetite of buyers for property across all price ranges, Colliers forecasts this year is likely to supersede last year - with a total value of sales close to $8 billion.
Looking beyond this current strong activity (highlighted by purchasers exploring new markets, new sectors and new opportunities) the question is, are those buyers over extending themselves and taking on too much?
This Capital Markets Report identifies 10 key features that suggest we are far from the risks of an overheated or euphoric market.
Report findings point to an extended pattern of buoyant investment activity being likely to continue. In no particular order those features are:
• global economic risks are well defined and volatility has stabilised
• the Reserve Bank of New Zealand
and credit agencies continue monitoring and mitigating risks for financial instability.
• the majority of investors are not overconfident or overcommitted
• sales activity is justified on current economic and property fundamentals
• asset values are appreciating modestly from positive cash flow and capital returns
• New Zealand yield levels are still higher than many major overseas markets
• the spread between debt costs and property returns will remain lucrative for longer
• there is limited political risk and high levels of transparency
• a positive demographic environment for commercial sales activity now and the future, and
• New Zealand is increasingly becoming a globally attractive, more liquid property market, increasing the depth in our transaction market.