Foreign investment on the rise

NZI Centre

Only 22.5 per cent of sales over $50 million used domestic capital

 

Foreign investment at the top end of New Zealand’s commercial property market has ramped up significantly in the last year, a new analysis has found.

Colliers International’s Capital Markets team has analysed the last three years of commercial property transactions in New Zealand with a value of $50 million and over.

The results show domestic investment declined in value by 77 per cent between 2015 and 2017, from $1.75 billion to $400 million.

Richard Kirke, International Sales Director at Colliers International, says there were 18 commercial property sales over $50 million in New Zealand last year.

“Of those sales, only five were to domestic parties, accounting for 27.8 per cent of the transactions by volume.

“However, domestic sales accounted for only 22.5 per cent of the transactions by value – so the vast majority of investment last year came from foreign capital.”

Kirke says 35.1 per cent of investment last year was from Asia, followed by 31.0 per cent from global funds and 11.4 per cent from Australia.

By comparison, domestic investment dominated in 2015, accounting for 64.4 per cent of the total transaction value, followed by 21.4 per cent from global funds and 14.3 per cent from Asia.

Kirke says the wave of offshore capital shows no sign of abating in 2018.

“Foreign investors are continuing to seek prime New Zealand assets,” he says.

“The biggest issue now is a lack of available stock, as owners hold onto their assets to take advantage of record low yields.”

Kirke says there is room for even further yield compression due to sustained foreign investor interest.

“For the last two or three years – not just here, but internationally – people have been saying ‘this is the year that it turns’.

“I don’t think this is the year that we’ll see yields start to go out. I think actually there is a greater likelihood that we’ll see yield compression.”

Kirke says liquidity in the commercial property market has improved due to the amount of international capital now invested in New Zealand.

“That’s always been a big concern for offshore investors, and I think they feel comfort now that they’re not just selling to a domestic market should they want to exit.”

Investors are predominantly looking for assets in Auckland, but prime properties with solid fundamentals in other centres are still appealing.

Only two of the 18 transactions over $50 million last year involved properties outside of Auckland – the Tate Technology Campus in Christchurch, and HSBC House on Lambton Quay, Wellington.

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Richard Kirke

International Sales Director

Auckland CBD

Richard is responsible for the promotion of New Zealand property to international investors, leveraging of his relationships developed in executive positions during his near 8 years in Hong Kong, as well as assisting to grow the company’s nationwide Rural and Agribusiness agency capability.

Richard began his real estate career in 2004 with CBRE, in the five years he spent with them (before leaving to run Colliers Hong Kong business in 2008) he was involved in many notable transactions including the sale of the Lion Nathan site in Newmarket for $162m, the sale of the GE & BNZ Britomart properties on behalf of Manson’s to the German fund HIH and portfolio sales, including the successful auctioning of 16 National Bank Branches across New Zealand.

During his time as MD of Colliers Hong Kong he was involved in the sale of 50 Connaught Road on behalf Apollo Group (a New York based Hedge Fund) to the Agricultural Bank of China for $US632m.

Richard was the Managing Director of Colliers Hong Kong office for six years from 2009-2014. During this time he was an active participant in several high value transactions and developed broad relationships with both Asian investors and colleagues across the region.

In late 2014, Richard agreed to run CBRE’s Asia Pacific Capital Market business, including their Capital Advisory (Real Estate Investment Banking) business, this further added to his knowledge of real estate investors, particularly in greater Asia.

As a senior executive of Colliers for 6 years in Hong Kong, Richard has strong personal relationships with Colliers personnel across the globe.

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