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Transactions dip in first half 2017 but offshore investment strong

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by September 19, 2017 General

Transaction volumes have totalled $1,260 million as a result of 67 $5+ million value properties changing ownership in the first half of 2017 according to CBRE’s latest New Zealand Investment Marketview report.

The largest transaction for the period was Westfield West City at 7 Catherine Street in Auckland which sold for $153 million by Scentre Group to Angaet Group and retail was the largest transactional sector according to the report with $371 million or 30% of total sales volume.

At 26% office market share dropped but with 18 properties and $328 million in sales sold remained high. Industrial sales totalled $224 million or 18% by sales volume.

Investors dominate purchasers for H1 2017, but developers were also active. Development Sites/Vacant Land constituted 14 sales totalling $257 million or 20% of total sales, their highest market share in more than ten years. The largest sales include a development site next to Middlemore Hospital bought by Mansons for $66 million

Senior Managing Director for CBRE New Zealand Brent MacGregor says despite a dip in transactions for H1 2017 the external indicators still point to a buoyant market.

“While transaction volumes are down slightly in the first half of 2017 compared with the same period a year ago, purchaser liquidity remains strong from well capitalised on and offshore parties countering the tighter credit conditions overall.”

“Private investors are the most prominent purchasers with institutions the second largest group by transaction volume. Syndicates are less active than in recent times. Offshore investment is net positive for the first time since mid-2015, dominated by Asian and Australian parties.”

Regional breakdown

In Auckland, there were 46 sales in the first half of 2017 totalling $1.0 billion and making up 80% of the total volume nationally. Five transactions were above $50 million, the largest of which was Westfield West City.

12 development sites sold for a total of $245 million, 11 office buildings sold for a total of $212 million, and 14 industrial buildings sold for a total of $131 million. Retail sales contributed $363 million across 6 sales. One hotel sold for $13 million, and a car park was sold for $7 million.

There were 10 transactions over $5 million in Wellington, totalling $102 million. No transaction was above $50 million. The largest transaction was the sale of the Transpower House at 96 The Terrace for $25 million.

Office sales totalled $39 million across 3 transactions. Retail consisted of one transaction, a $5 million sale of Briscoes at 112 Jackson Street. There were 3 industrial sales totalling $27 million.

Christchurch had 11 sales totalling $156 million. The largest of these was the PwC building at 60 Cashel Street which sold for $49 million.

Offshore investment

Overseas investors injected $394 million into the New Zealand property market in the first half of 2017, and sold $228 million worth of property. The most active were Australia, China, Singapore and USA. Australians were both vendors and purchasers, with $210 million of property purchased, and $204 million sold.

The overall overseas acquisitions for H1 2017 of $394 million, compares favourably with H1 2016 when overseas purchases totalled $355 million. In terms of investor types, offshore privates purchased $271 million, while offshore institutions purchased $122 million worth of property.

There were 6 properties purchased by overseas privates with the highest price of $153 million paid for Westfield WestCity by an Australian private investor.

Vendor Purchaser Profiles

As vendors, Privates consisted of 46% of the transaction volume. Corporations, which essentially represent large owner occupier companies, were more inclined to sell than to buy in H1 2017, with the selling activity at 20% and purchasing activity at 8% of the market.

Almost $256 million of property was sold, and $100 million bought by Corporations over the past six months.

Private purchasers’ market activity in H1 2017 accounted for 66% of transaction volume, more than the 10-year average of 56%.

In the past 10 years on average, Investors constituted 80% ± 8% of the purchasing market, with the current result of 69% standing below the historical average. As vendors, Investors constitute 69% of the current market, while historically the 10-year average stands at 68% ± 11%.

Price

The lower end deals ($5-$10 million) stand at 46% of all transactions, and the upper end deals (above $20 million) stand at 24%.

The findings suggest a reversal of a trend for the second half of the year, as between H2 2005 and H2 2014 lower end transactions appeared to be on decline as a proportion of all transactions.

Zoltan Moricz, Senior Director of Research for CBRE New Zealand, says it is too early to say if the current trend reversal is to be confirmed in H2 2017.

“It is not expected that this decrease would be reflective of the entire year as it is anticipated the second half of the year to be robust moving the point upwards as a result.”

“Currently, we are aware of a number of high end transactions already being completed during the second half of this year, and thus of a possible reversal of the most recent trend at the high end of the transaction spectrum.”

The median transaction price for 2017 is $11.0 million, following 2016 median of $11.9 million, and $11.2 million recorded in 2015. The median transaction price displays a clear growth trend in the period following 2008. The average growth since 2008 is $417,000 per annum.

It is expected that the second half of the year will provide an uplift to the median price which would result in the point moving upwards, according to Moricz.

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