Commercial property transactions pass $4 billion mark

Commercial property transactions pass $4 billion mark again and second highest in past decade

- Consistent second half of 2016 sees another big year in transaction volumes -

Auckland – Close to a billion dollars in office sales in second half of 2016 and a spike in interest by syndicates, has underpinned another record year for commercial property transactions volumes, the second highest in the last decade, according to CBRE’s latest New Zealand Investment Marketview report.

Zoltan Moricz, Senior Director of Research for CBRE New Zealand, says that while the $2.054 billion of transactions over the last six months of 2016 was down slightly on same period in 2015, combined with a strong first half of the year, the annual national result stands at $4.46 billion.

“This is the third year in a row showing transaction volumes above the $4 billion mark. Auckland led the growth path with 65 sales in the second half of 2016, with sales totaling $1,501m to add to the $1,598 sales in the first half.”

Other key factors underpinning the headline numbers include:

• Active office and retail sectors

With $999 million or 49% of total sales volume, office was the largest transactional sector in the second half of 2016. Retail’s market share dropped but remained high at 26%.

35 office properties sold out of a total volume of 88 over second half of 2016.

“The largest individual transaction was the 50% share in the PSP portfolio which sold for $580 million to another Canadian pension fund, CPPIB. The transaction involved 6 Retail centres, and 7 Office buildings.”

“Large sales include The Millennium Centre at 600 Great South Road for $210 million and other notable sales include the new Canterbury District Health Board building in Christchurch which sold for $34 million.”

Meanwhile industrial activity was relatively low at 13% or $257 million. The largest industrial transaction was that of 31 Baigent Way Christchurch which sold to a private investor for $28 million.

• Offshore players net sellers

Overseas investors injected $699 million in the New Zealand property market in the second half of 2016, and sold $726 million worth of property. The sales figure was significantly weighted towards one transaction however – the $580 million of property sold as part of the PSP portfolio. Moricz says that transaction highlights a continued interest from offshore purchasers although the relative lack of local scale is a barrier to the entry of some offshore institutions.

In terms of country of origin, Canada was the most active offshore purchaser and vendor for 2016 with two Canadian entities involved in the PSP (ex AMP portfolio) transaction. China (purchasing $72 million) and USA (selling $75 million) were the next most active in the offshore investment market.

• Institutions sell up as syndicates buy up

After institutions were the main accumulating party of commercial property in 2015, results for 2016 show that institutions purchased $589 million less property than sold.

Moricz says the opposite net annual investment trend goes for private investors, becoming net purchasers again in 2016 with $150 million or 3.4% of market activity.

“It is the syndicates that are proving the strongest in terms of net investment activity, with $711 million or 15.9% of overall transaction volume.”

“The level of investment activity from Syndicates is the highest we’ve seen, accumulating $1.82 billion nearly as much as Private investors at $1.85 billion and continues to demonstrate the general long term trend for this investor type.”

• Higher value transactions on the rise

The average transaction price in the $5 million plus bracket increased to $22.3 million in 2016, from $20.4 million in 2015, and $20.0 in 2014. The median transaction price has also risen from $10.6 million in 2014 to $11.9 million last year.

Moricz says the median displaying a clear growth trend in the period following 2008 and there are suggestions an upward pressure may eventuate in the current year.

• Development sites interest

Vacant land/development sites accounted for 5% of the second half 2016 transaction volumes with eight sales totaling $109 million. The largest sales include 42 Fred Taylor Drive as part of the Westgate precinct $38 million to an overseas investor and the ex-Caltex station site at 155 Fanshawe Street Auckland, sold to Mansons for $23 million.

Andrew Stringer, Managing Director for Auckland at CBRE New Zealand, says as strong market activity levels continue, it is in a good position to deliver the integrated service offer necessary to meet the growing complexity of commercial property transactions.

“With 2016 again proving a strong year, the potential for greater upward pressure on prices, reinforces that investors, asset owners and developers, need to look beyond the metrics of the transaction itself. Every decision from negotiation strategy to transaction structuring has the potential to greatly affect returns in this market and requires a multi-faceted approach”.

“Another highlight from last year, is the active interest in development properties especially for Auckland with the significant migration and economic growth it’s experiencing at present. However, with access to debt capital becoming tighter, knowledge and expertise in deal structuring and alternative capital sources is becoming a pivotal factor. CBRE can deliver a broad range of client solutions in this area, having structured and procured debt funding for a number of significant deals in recent months.”

ENDS

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

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