Market News

Commercial Market Commentary

The general outlook for early to mid 2012 is that the commercial property sector will continue in the same vein as it has over the last 36 months.  There continues to be a wide gap between properties of varying quality and lease covenant.  For example there is competition for sound investment properties with strong tenant covenant, quality improvements and longer weighted average lease terms, whilst less attractive assets tend to suffer in terms of market interest and achieved prices due to issues such as economic and physical obsolescence and poor occupancy arrangements.  In general, net effective rents have decreased with increasing incentives being offered.

There is still demand for investment properties priced below $2,000,000 from smaller private investors particularly in the retail sector. Assets over $5,000,000 are less likely to meet market demand unless well located and leased, primarily due to the more limited number of buyers and continuing funding difficulties in the marketplace. On the other hand, larger well leased investment properties over $10 million in value and showing more attractive yields are again being sought after by syndicators in the retail and industrial sectors. The easing in fixed mortgage rates has assisted investors in this market.

Overall however, sales volumes are currently low and buyer interest, in the main, has been dominated by private local investors. Owner occupiers have been actively purchasing small vacant properties. These buyers typically see a cyclical buying opportunity for long term gains, and relatively low interest rates have encouraged this activity.  Looking forward however, international macro economic factors such as the current Eurozone crisis could see a cautious purchaser market for the next 6 months at least. 

The 2010 budget removed depreciation claims on buildings with only a partial offset by lowering income tax rates. Expectations for a general economic recovery have remained muted, with mixed consumer confidence and unemployment indicators persisting. Overall, the market is not expecting a recovery in property values over the short term, however the medium term outlook (say 5 years) is that a gradual recovery can be expected to occur.

Property is not immune from economic forces and it is for this reason that we emphasise that advice should be taken at the time of any property investment decision.

Residential Market Commentary

Auckland’s residential property market maintained an extraordinary prolonged period of growth in values, from late 2001 until mid 2007. After mid 2007, sales volumes dropped significantly, causing a general decrease in property values by the second half of 2008. The initial catalyst for this sudden change in the market was the failure of several finance companies, which had an impact on the availability of credit.

Throughout 2008, the worsening market sentiment was compounded by deteriorating economic conditions both locally and internationally (GFC).  During this period, potential buyers were content to wait and observe market trends as they developed, and a significant proportion of those who were active in the market were bargain hunters taking advantage of distressed vendors.  Consequently, some very low selling prices were recorded in 2008 and in early 2009, although these were often attributable to situations where the vendor was under duress.

Downward pressure on prices during 2009 was mitigated by the easing in monetary conditions including interest rates, to combat the credit crisis (and global recession).  This lessened the extent of the downturn, and our observations indicated that most Auckland City suburbs experienced an excess in demand over supply during the second half of 2009 and early 2010.

A substantial drop in residential sales activity was evident in late 2010 and throughout 2011, when sales volumes reduced to similar levels to 2008.  In contrast to 2008 however, the Auckland City market is not influenced by vendors who are under pressure to sell, and consequently there has been no downward pressure on values in the mid to upper tier of the market.  Conversely, the Auckland City residential market experienced a slight but significant upward movement in values during 2011.

Factors currently influencing the residential market include continued low interest rates, and a shortage of listings particularly for family homes located within the former Auckland City area. Of significance in the wider Auckland region is the lack of new residential construction over the last two years. Building activity has fallen away as a result of the economic downturn, and continues to be constrained by a lack of funding for developers.  If the economy continues its recovery during 2012, the undersupply of new building will prevent significant declines in residential property values, and should result in accelerating house price growth in 2012/13.

Apartment Market Commentary

2008 saw a significant slowdown in the CBD apartment market initiated by higher mortgage interest rates, the subsequent withdrawal of most investors, while sentiment in the market was not assisted by the collapse of a number of the Blue Chip group of companies.  The difficult market conditions with low volumes of sales continued throughout 2009, although the latter half of 2009 and early 2010 saw an increase in market activity as a result of historically low mortgage interest rates and a cautious increase in business and consumer confidence.  During the latter part of 2010 and early 2011 we continued to see relatively low sale volumes and generally steady sale prices, although during the course of 2011, particularly near the end of the year, we note the market showed signs of lifting as a result of increased activity and stronger rental returns.