All Eyes On Commercial Property Investment Options

Rural landowners can spend a lifetime getting to know their industry and understand the land they own. So, when the time comes to exit the orchard or farm, often the main challenge presented is what to do next for the owners. Rural landowners are keen to keep a level of equity invested in what they know best, land, but unsure of the best structure to do so.

Equally, landowners may want to grow their rural landholdings, but don’t yet have all the equity required to purchase their next farm or orchard.

Commercial property investment, being a physical asset that can be seen and touched, could provide part of the solution.

With expertise and engagement across the rural, residential and commercial sector, Bayleys is well placed to advise and position them in property investments that fit with their new life stage.

Ryan Johnson, Bayleys national director commercial and industrial says while there are these physical similarities, there are also other factors to consider when investing in commercial property, particularly the strength of tenants, type of building, location, land/zoning, lease terms, and fitouts.

Commercial property investors also have several choices about how they invest and the extent to which they need to carry out their own due diligence. These include buying shares in property companies listed on the New Zealand Stock Exchange, opting for a syndicate and owning a portion of a property, or a direct purchase themselves.

HANDS-OFF INVESTMENT

“One of the most ‘hands-off’ forms of commercial property investing is buying shares of property companies listed on NZX, although of course there is brokerage to pay, and managers take fees.

“One benefit of listed companies is their diversity of assets and geographical spread. Companies like Property For Industry and Goodman Property specialise in top tier industrial properties with a strong Auckland focus. Kiwi Property and Precinct Properties have more exposure to office and retail properties in Auckland and Wellington mainly.”

Another option is to invest in a fund that holds shares in listed companies, such as Forsyth Barr’s Listed Property Fund.

Property syndicates are another popular form of commercial investment, often with higher returns because of the way they are structured, Johnson says.

Syndications generally offer returns one or two percent higher than listed company shares and considerably more than current bank term deposits. Some of the most recent syndications have offered returns of around five percent.

Property syndications commonly offer parcels of units or shares generally between $10,000 to $50,000 each for an ownership share in a commercial property and establishment fees will be outlined in the investment statements. Syndication properties can vary from supermarkets to standalone retail, industrial and office properties.

There are several specialist commercial property syndication companies that have dominated the market in recent years, which include Centuria (formerly Augusta), Oyster Property, Silverfin Capital and Erskine + Owen to name a few. Given Bayleys’ long association with commercial property syndication, Bayleys can offer investors a range of options currently available in the market.

DIRECT INVESTMENT

Another form of commercial property investment is for investors to buy and own either as individuals or through an ownership company or trust set up for the purpose.

Johnson says that over the past 10 years, total returns from direct property investments have averaged 10.2 percent, making them attractive for retirees, superannuation funds or investors looking for an annuity style income. Investors and purchasers can range from individuals to trusts and partnerships.

A reliable tenant underpins the income streams that are typically paid monthly, and the underlying lease terms ensure rental income is stable and locked in for a predetermined period outlined in the lease (typically six years or more for larger tenants). Usually, the lease contains minimum annual increases in line with inflation, which means the property also tends to appreciate simultaneously.

“Strong demand and a stable economy have seen strong growth in commercial assets in recent years, and many direct property owners like to see the bricks and mortar they have invested in,” says Johnson.

As farmers and orchardists exit their rural land ownership, the reasons for keeping some of that equity in land remain compelling, with capital gain securing its future value while good commercial lease rates ensure steady monthly returns vital in retirement years.

Nick Hawken, Bayleys’ national director for rural says for anyone who has committed a lifetime to land ownership, abandoning it completely can be unappealing, and could prove to be a risky move later in life.

“Bayleys has significant expertise in both commercial property and syndicate investments to offer farmers and orchardists viable land-owning options beyond the gate. We can provide access to resources to assist those rural landowners with a transition to commercial property ownership, so their investment in land continues to be an attractive option.”

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