Hawke’s Bay Commercial Property Strengthening

PRESS RELEASE | July 11 2016 | Turley & Co Property Market Report to June 30

Hawke’s Bay Commercial Property Strengthening

A Napier New World supermarket has apparently blocked rival chain Countdown’s neighbouring development, by buying land in the proposed area and paying more than twice its rating valuation, reveals Turley & Co’s Property Market Report.

The independent property valuers and strategists’ report for the first six months of 2016 says LINZ records show Greenmeadows New World appears to have scuttled reported land aggregation opposite it by paying $2 million for a 1,990m2 property with a rating valuation of $980,000.

More recently, hopes for a Countdown supermarket in Taradale were abandoned after the chain’s efforts to aggregate land were again unsuccessful, the report said.

The jockeying for property is symptomatic of a tightening Hawke’s Bay property market despite widespread commercial-industrial development, reflecting strong interest from out-of-town investors in a “booming” Hawke’s Bay economy.

Hawke’s Bay has low exposure to the slump in the dairy industry while industries such as tourism, pipfruit, wine and cropping enjoy good prices and volumes.

The report said competition from overseas-based investors and New Zealand syndicates was driving prices up as continuing low interest rates made lower capital returns attractive. The Warehouse Hastings is advertised for sale for 41.8 % more than its 2011 sale at $13.4 million, by Australian developers Charter Hall. The 2011 purchase gave an 8.25 % yield but the current asking price of $19 million would yield 6 %.

Industrial Sector

The industrial sector is seeing sales with good-calibre tenants at a 6 % yield. Investors are increasingly favouring industrial property because of simpler/cheaper construction and a lower downstream risk of costly upgrades.

In May BOC Gas Napier sold for a 6 % yield and in June PBT Transport for 6.25 %, yields unprecedented in the local industrial market.

“Competition to secure properties of these traits in the $2 million to $4 million bracket has been hotly contested and often occurred off-market,” the report said.

“There is no doubt that borrowing rates sub-5 % have pushed down prime industrial property investments cap rates.”

Office Sector

The office sector saw considerable development activity over the past three years resulting in rent variation. Rents for new buildings are competitive, as rising values give developers greater headroom.

Most market activity stemmed from tenants upgrading or seeking better seismic-rated buildings.

For higher-rated or new buildings the market was much healthier.

There remained intense competition for office tenants “who are generally in the box seat”.

“This seems set to continue for some time. Face rent is sometimes disguised by an untold leasing inducements back-story.”

Occupiers or new businesses looking for lower-quality offices were finding better value.

The migration of Napier office occupiers to Ahuriri was a continuing trend.

“Overall, the current Hawke’s Bay office market is in over-supply and the outlook for mid-market and lesser-quality offices is mid-term ordinary especially if seismic rating is below 65 to 70 % of the New Building Standard.”

Retail Sector

Good retail revenues are expected for the remainder of 2016 and into 2017. Napier is boosted by increasing tourism, especially cruise ships, and Hastings recorded a 22.5% year-on-year increase in retail spending for the first quarter of 2016.

Hastings CBD and fringe rent affordability is providing impetus for new retailers/start-ups.

Napier’s CBD intensification and seismic strengthening of the previous two years has eased.

Havelock North’s retail heart “remains particularly strong” with rents increasing and the $25 million Village Exchange retail/hotel development expected to have positive impact.

Taradale rents have dropped from past highs but the number of empty shops decreased from 11 in early 2014 to six in March.

“The popularity of eateries and takeaways in Taradale is considerable. New occupiers include florist, craft, fresh produce and other local retailer businesses.”

Large-format retail activity remained high in Napier and Hastings with considerable vacant space backfilled by New Zealand and Australasian retailers.

“These retailers are positioning for competitive advantage and future growth but potentially drawing some consumers away from CBDs.”

General Outlook

“After 7-8 years of hard toil, Hawke’s Bay’s economy is performing strongly. Booming apple and viticulture industries have insulated the province from poor dairy performances.

“The positive turnaround in local consumer confidence is at polar opposites from 24 months ago. Jetstar’s strategic establishment at Hawke’s Bay Airport (alongside Air NZ), is aimed at New Zealand’s record tourism growth, as well as increasing provincial travel options.

“Retail spending is up. Hawke’s Bay’s residential property market is displaying strong capital growth and recently there have been a number of very firm cap rate commercial property investments made.

“The stars are aligned for Hawke’s Bay’s economy and we expect this to continue for the foreseeable future provided there are no major economic shocks.

“As observed by us since 2009, there was a significant shift towards greater differentiation for commercial-industrial property considerations: location, building quality, versatility, age, tenant surety, lease quality, term certain and since 2011, building seismic performance.

“The 2016 yield spread of plus 2-4% is greater than pre-GFC albeit is now much narrower and reducing further for mid-risk property. This is a classical boom characteristic.”

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