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Commercial and Industrial Property Market Reports

Press Release – Turley and Co

– Macro Report National Cap Rates, Hawkes Bay Developments and Outlook – Hawkes Bay Office Report – Hawkes Bay Industrial Report – Hawkes Bay Retail ReportCommercial and Industrial Property Market Reports | February Release

26 February 2015

Turley & Co property valuers and strategists recently published four reports (published biannually since 2007):

– Macro Report National Cap Rates, Hawke’s Bay Developments and Outlook
– Hawke’s Bay Office Report
– Hawke’s Bay Industrial Report
– Hawke’s Bay Retail Report

Please refer to the full reports Word files.

Report Highlights
The Q3-4 2015 Market Report by Pat Turley and Kurt Richards of property strategy company Turley & Co, provides some of the most in-depth market overviews available. Report highlights include:

• “Overseas-based investors and kiwi syndicates chase cap rates even lower for prime NZ commercial-industrial property, as sustained low interest rates positively impact values.”

• “Ongoing rebuilding and strengthening provides economic stimulus and this affects the buildings supply and redundancy equation. Hawke’s Bay’s commercial-industrial development activity is widespread”.

• “Local construction costs continue to rise in a busy development environment with fewer tradespeople and higher materials costs. These factors are impacting values”.

• “Strong tourism and existing and developing industries in Hawke’s Bay (apples, wine, water bottling, etc), are insulating the region from poor dairy performances. Hawke’s Bay is trucking.”

• “Hawke’s Bay office investment cap rates are widely differing and transactions of significance are infrequent”.

• “Continuing Havelock North and Ahuriri reduced industrial prominence contrasts with progressive increases for Whakatu, Elwood Rd and Omahu Rd”.

• “Economic indications point to overall strong retailer revenues 2015-16 summer – Napier is especially helped by visiting cruise ships”.

Market Macro Considerations | Office, Industrial and Retail Property
Turley observes that “the low cost of debt is currently a significant contributor and properties of good investment characteristics continue to sell very well, often below 6% yield”. Turley says “spectacularly low deposit and bond returns make commercial property an attractive investment alternative for many Kiwi’s seeking higher yields and capital gains”.

“Hawke’s Bay’s provincial economy begins to ramp up after 7-8 years of hard toil. Hawke’s Bay’s booming apple and viticulture industries have insulated the province from poor dairy performances. Jetstar’s establishment at Hawke’s Bay Airport (alongside Air NZ) opens the door to more provincial travel options “capitalising on tourism growth”.

Turley & Co’s report says “seismic performance is the lead factor” in a considerable amount of commercial property activity since 2012”. Seismic performance has “caused pain and opportunity, with increasingly tenant-led strengthening, relocations and development and that ongoing rebuilding and strengthening provides economic stimulus”.

Refer to report for a table of current and recently completed Hawke’s Bay developments 2014-16.

Turley & Co predicts “given sustained reduced interest rates and broadly better economic conditions, most investment property is likely to reflect even firmer yields in 2016. We believe the cap rate trend is most probably still downward so values trending higher”.

Sample of national commercial-industrial property investment sales tracked by Turley & Co are available within the full report.

TCL Outlook 2016
The report says “Hawke’s Bay is reporting more job opportunities advertised and the local residential housing market is experiencing a shortage of properties and some considerable localised heat for the first time in 7 years” and that people are relocating from Auckland or elsewhere to Hawke’s Bay, or buying local property. “Trends for Hawke’s Bay commercial-industrial property could be expected to improve further in 2016”.

Napier, Hastings and Havelock North Office Property Market
Hawke’s Bay’s office market has seen considerable development activity over the past 3 years which has resulted in mixed effects for rents. Turley says “we expect continuing rent values divergence for relative seismic category and other qualitative considerations. As leases mature, more seismic-rating triggered tenant relocations are anticipated through 2016”.

There is quite intense competition for office tenants who are “generally in the box seat”. This seems set to continue into 2016 according to Turley & Co. At the same time new building costs creates a firm floor for rent required for newly developed buildings.

The report says “office development activity remains frequent encouraged by Hawke’s Bay tenants reshuffling led by seismic considerations”. Considerable yield divergence applies for “property quality and tenancy surety/ risks and vacancy aspects”. Office property sales are running at a low ebb with recent new developments mostly retained by developer-landlords.

Napier, Hastings and Havelock North Industrial Property Market
Turley & Co’s report says “continuing Havelock North and Ahuriri reduced industrial prominence contrasts with progressive increases for Whakatu, Elwood Rd and Omahu Rd”.

“Considerable industrial land remains tightly held or land banked, so much is currently unavailable for development” albeit with new Omahu Road supply imminent. The 2012 arterial by HDC to better connect State Highway 2 and Pakowhai Road at Whakatu, will “elevate the importance and popularity of what is a centrally located to Napier-Hastings industrial and commercial hub at Whakatu”.

Napier, Hastings and Havelock North Retail Property Market
Turley & Co’s report says that “the supply side has remained relatively steady over 2015, making rent affordability to local and national retailers a drawcard near the CBD or fringes, on top of spiking local economy optimism”. The creation of the greenspace created in place of the demolished Albert Hotel has been a public space success.

Stortford Lodge’s corner site was developed in 2015 by Bay Ford and Bay Motorcycles to an attractive new showroom and display yard. Situated at one of Hawke’s Bays busiest intersections, “the development has been done to very good effect”.

Turley & Co predicts “prime retail rents in Napier’s CBD to remain static through 2016, off the back of some already firm cost-led redevelopment rents and oversupply”. There will be ongoing demand by leading retailers for “prime Napier locations, especially as Napier’s tourist destination status grows”.

The report says “it appears the Hastings Street in Napier development boom has cooled on the back of currently good supply and some oversupply of newly created floor space”.

Turley & Co report “several new lettings occurred 2011-12 for the very confined Taradale retail precinct but at rents much reduced to past highs. Total shop vacancies since early 2014 have reduced from 11 to 5”. The popularity of eateries and takeaways at Taradale is considerable.

Havelock North
Turley says “Havelock North retail vacancies have been close to non-existent since approximately 2003, bucking market trends in other locations. Retail accommodation continues to expand in the fringes to meet demand and including retail migration to traditionally industrial sites at Havelock North”.

Currently under construction, LowMac’s $25M Village Exchange development “will add high-end retail shops supply in Havelock North”. We expect the three-storey Village Exchange multi-use development will have mid-term major positive property effects for the Havelock North. Havelock North’s residential property creep onto formerly rural land and coinciding increasing population are “other future strength factors,” the Turley & Co report says.

Large Format Retail (LFR)
Noel Leeming in 2015 occupied new premises at The Park further strengthening this LFR cluster, however FCO sits vacant after closing. Land remains available to develop at The Park and leading brand retailers Rebel Sport and Briscoes are proposed occupiers. In late 2014, PK Furniture joined Warehouse Stationery at the former Mitre 10 address. The Clearance Shed in 2014 took up almost half of the space in The Warehouse’s old shop for lease 6 years.

In Napier, Placemakers relocated to redeveloped premises at Corunna Bay Pandora. Harvey Norman opened in Wellesley Road’s Balmoral Centre and Noel Leeming expanded its footprint into Godfrey’s adjoining premises. Godfrey’s has since shifted to Carlyle Street’s cluster of stores.

Turley & Co reports that “overall there has been a spike in bulk-retail or LFR activity, considerable vacant space has backfilled by a handful of new and existing national and Australasian retailers 2014-15. These retailers are positioning for competitive advantage and future growth, but potentially drawing some consumers away from CBDs”.


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