Booming Bay a boon for buildings

Owners of earthquake-prone office buildings in Hawke’s Bay have a reason to smile, thanks to a boom across the region’s key business sectors.

Turley & Co’s Office Property Market Report, for the quarter ending December 2018, says rent levels for existing Hawke’s Bay office buildings are growing for the first time in a decade.

Previous reports from Turley & Co, a property strategist and registered valuation company, showed only new office developments were experiencing growth in rent levels.

“Hawke’s Bays’ economic boom is starting to pull the previously challenged existing buildings office market in an upward direction,” the report says.

There has been an oversupply of office space in Hawke’s Bay over the decade, accentuated by new developments leaving older space in their wake.

“Most market activity was by tenants wanting to upgrade or led by seismic considerations. Market reshuffling accounts for most activity rather than office sector occupancy growth.”

Seismic considerations following the 2011 Canterbury earthquakes remain a factor.

“There remains an abundance of older office stock vacancy in Hawke’s Bay. Hastings District Council has an initiative to encourage conversion of disused upper levels CBD office space to residential.

“At this stage it hasn’t eventuated but this would obviously absorb redundant offices and assist inner-city vibrancy. Hotel developments planned and mooted would also assist vibrancy. “

Napier and Hastings CBDs continue to face competition from nearby suburbs.

“The quayside suburb of Ahuriri (Napier) has attracted Government agencies and professional services office tenants. Ahuriri over decades has progressively transformed
from what was an inner-harbour industrial heartland. The vibrancy of bars, restaurants, boutique shops and apartments, has attracted Napier CBD tenants.

A similar dynamic is occurring for Havelock North, with competitive effects for Hastings’ CBD office sector and the city centre.”

“The silver-lining for occupiers or new businesses considering lower-quality offices (2nd or 3rd tier), is improved rent economy. The mid-market upgradable office supply is a Hawke’s Bay economy competitive advantage. The conversion potential for collaborative workspaces/ tech hubs or residential redevelopment is an upside opportunity.”

For investors in Hawke’s Bay office property, the report says there remains “very limited marketed office investment stock of good traits”. Most was tightly held or retained by developers.

The report lists office investment property sales for 2018, ranging from $350,000 to $8 million. Yields range from 6.1 per cent to 9.0 per cent.

Turley & Co’s Office Property Market Report was one of four comprehensive property reports recently released.

The Macro + Predictions Report says Hawke’s Bay’s economic conditions “remain exceptionally buoyant” with commercial property values “escalating impressively” in 2018-19.

“Confidence is high driven by a coincidence of fortunes across most sectors that lead to the region’s economy, underpinned by persistently-low interest rates.”

The Retail Property Market Report says rental yields for owners were “historically low” as property values increased, reflected in the sale of The Park Mega sale in late 2018 for $21 million – an impressive 6.47 per cent yield.

The Industrial Property Market Report says optimism has spurred a heightened level of new builds, with a good supply of land given recent rezoning by HDC although much is yet to be fully serviced.

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