New Zealand Research Report | May 2019 | Colliers International Research1

May 2019

International AttractionOffshore investment activity in our office sector has

boosted overall transaction activity. Our underlying

fundamentals relative to offshore markets are a key

driver. We compare vacancy rates and yields in

Sydney with Auckland and Wellington to showcase

the reasons behind the latest surge in international

attraction.

In 2017 and 2018, an aggregated NZD$3.2 billion of

Auckland office transactions for property over $50m

was recorded. This was a stand-out for two reasons.

Auckland’s flagship office sector was receiving a

significant amount of interest, and offshore investors

were dominating activity with 85% of all purchases.

While the latest surge in activity has been a standout,

activity has been building for several years. It was

2014 when offshore interest started to take-off, which

many will remember is also the year we were given

‘rock-star’ status.

In 2014, Canadian Pension Plan Investment Board

(PSPIB) bought a NZD$1B portfolio from AMP.

Singaporean investment fund GIC entered the

market, purchasing 49% of five Scentre Group

(Westfield) shopping centres for just over NZD$1B.

GIC later went on to buy 49% of Goodman Property

Trust’s VXV3 portfolio with OIO approval in January

2015.

As the middle chart shows, Sydney and Auckland

CBD office vacancy rates were starting to align in

2014, the first time since the GFC. However, the

bottom chart shows that Sydney and Auckland office

prime yields were approximately 130 basis points

apart. To offshore investors, our ‘rock-star’ economy

and attractive purchasing represented good buying,

and as the two charts show, similar market

characteristics remain.

In 2015 and 2016 we saw higher levels of domestic

High Net Worth and syndication activity occur

amongst global changes in conditions through the US

election and Brexit referendum. The Asia Pacific

property sector remained relatively unaffected, and it

set the foundations for another surge in activity from

offshore investors scouring the New Zealand market

for more opportunities.

CBD Office Overall Vacancy Rates

Source: Colliers International Research

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

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Auckland Wellington Sydney

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Dec-9

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Auckland Wellington Sydney

CBD Office Prime Yields

Auckland $50m+ Office Transactions – 2017 & 2018

85%

15%

Offshore Domestic

Offshore

BUYERS$2,745,980,000

Domestic

BUYERS$477,656,649

Total $3,223,636,649

New Zealand Research Report | May 2019 | Colliers International ResearchNew Zealand Research Report | May 2019 | Colliers International Research

New Zealand Key Economic Indicators – May 2019

Dec-18

(yr rate)

Dec-18

(qtr rate)

Sep-18

(qtr rate)

Q-o-Q

Change

Dec-17

(yr rate)

Y-o-Y

Change 2020F* 2021F* 2022F*

GDP Growth 2.3% 0.6% 0.3% 0.3% 3.4% -1.1% 2.4% 2.6% 2.6%

Current Account (% of GDP) -3.7% NA NA NA -2.9% -0.8% -3.2% -3.4% -3.4%

Mar-19

(yr rate)

Mar-19

(qtr rate)

Dec-18

(qtr rate)

Q-o-Q

Change

Mar-18

(yr rate)

Y-o-Y

Change 2020F* 2021F* 2022F*

CPI Inflation 1.5% 0.1% 0.1% 0.0% 1.1% 0.4% 1.8% 1.9% 1.9%

Net Migration Gain (000's) 39 8 9 -1 49 -10 24 17 17

Retail Sales (ex-auto) 4.0% -0.2% 2.3% -2.5% 4.4% -0.4% 4.6% 5.1% 5.1%

Unemployment Rate 4.2% 4.2% 4.3% -0.1% 4.6% -0.4% 4.1% 4.1% 4.1%

Jan-19

(yr rate)

Dec-18

(yr rate)

M-o-M

Change

Jan-18

(yr rate)

Y-o-Y

Change

10 Year

Average2020F* 2021F* 2022F*

Tourist Numbers Growth 4.3% 4.1% -0.3% 2.3% 1.9% 5.4% 4.5% 4.0% 4.7%

Official Cash Rate 1.75% 1.75% 0 bps 1.8% 0 bps 2.40% 1.25% 1.50% 1.50%

90 Day Bank Bill Rate 1.9% 2.0% -7 bps 1.9% 3 bps 2.6% 1.5% 1.6% 1.6%

10 Year Government Bond 2.3% 2.5% -12 bps 2.9% -55 bps 3.7% 2.7% 2.9% 2.9%

Floating Mortgage Rate 5.9% 5.9% 0 bps 5.8% 1 bps 6.0% 5.4% 5.4% 5.4%

3 Year Fixed Housing Rate 5.1% 5.1% 0 bps 5.3% -23 bps 6.1% NA NA NA

Consumer Confidence 122 122 0% 127 -4% 120 NA NA NA

NZD vs US 0.68 0.68 0% 0.73 -6% 0.74 0.66 0.65 0.65

NZD vs UK 0.54 0.54 -1% 0.53 2% 0.50 0.49 0.47 0.47

NZD vs Australia 0.95 0.95 -1% 0.91 4% 0.86 0.88 0.86 0.86

NZD vs Japan 77 77 0% 81 -5% 74 74 73 73

NZD vs Euro 0.60 0.60 0% 0.59 1% 0.59 0.61 0.62 0.62

Source: NZIER, Colliers International Research

*March year forecast

2

Since this time, we have had investment from the likes of

Roxy-Pacific, KKR, Investec and perhaps most significantly,

Blackstone, which purchased the VXV3 leasehold

commercial property portfolio for $635 million at a 6.6%

yield. This seemed to provide New Zealand with a global

tick of approval with more offshore purchasing activity from

the likes of Invesco and PAG Asia, as well as others. The

culmination of the five years of activity since 2014 has seen

billions of dollars of New Zealand commercial property

transactions take place and has significantly increased the

depth of our transactional market. It has also helped fund a

number of new development opportunities for our listed

property sector companies.

While we expect conditions to remain in place for offshore

purchasers to find attractive purchasing options, especially

in Auckland, we note there may be higher levels of interest

elsewhere as well.

Until recently, Wellington’s office sector has experienced

much higher vacancy rates and a small yield gap on

Auckland. Offshore purchasing activity has been evident

with the likes of Investec in 2017, but not as significant.

However, the Wellington CBD office vacancy rate is similar

to Auckland and Sydney now, and the most aligned since

2011. With a positive yield gap, there could be some greater

interest in Wellington’s office sector in 2019. Precinct

Properties’ marketing of two major office premises, Pastoral

and Mayfair Houses, will be an excellent future indicator of

offshore interest for Wellington.

Commercial Interest Rate Guide

Date3 Year Term

(Indicative Borrowing Rate)

Feb-18 4.93%

Mar-18 4.91%

Apr-18 4.90%

May-18 4.98%

Jun-18 4.90%

Jul-18 4.78%

Aug-18 4.83%

Sep-18 4.64%

Oct-18 4.62%

Nov-18 4.62%

Dec-18 4.71%

Jan-19 4.47%

Feb-19 4.45%

Mar-19 4.47%

Apr-19 4.15%

May-19 4.06%

Source: ANZ, Colliers International Research

Note: the lending rate quoted in the table is not

necessarily what you will be offered, and should be

regarded as indicating medium term trends.

New Zealand Research Report | May 2019 | Colliers International Research

Office

The total floor area consented for office related buildings

across New Zealand was approximately 178,000sqm for

the year to March 2019, well below the historical average of

around 223,000sqm. The three preceding years

aggregated to nearly 889,000sqm of consented floor area,

which was comparable to construction activity in 2007 from

2009.

A slowdown in space expected to be constructed over the

next couple of years based on lower levels of consented

space does little to resolve the historical lows in availability

in Auckland and Wellington. While we do expect further

supply to trickle through overtime, this will only provide a

modest lift to the existing total stock.

Demand outweighing supply will likely translate into further

escalations in rental figures and assist investment yields to

firm further over 2019, albeit modestly in comparison to

previous years.

Retail

NZ Retail Radar’s quarterly survey for March shows survey

respondents expect challenging times ahead, with 55 per

cent of retailers stating they are not meeting sales targets,

an increase of 11 per cent from the previous quarter.

Furthermore, 36 per cent of retailer’s do not expect to meet

targets in the succeeding quarter.

However, the latest ANZ-Roy Morgan survey shows

consumer confidence steady and near historical averages,

with a slight bump of 1 point to 123 in April. This is echoed

by a positive gain of 8 points for respondents believing now

is a good time to buy a major household item (net 46%).

Canterbury marked the greatest increase in consumer

confidence up 5 points. South Island outperformed, up 10

points to 125.

Industrial

All Auckland precincts will likely experience rent increases

in the next few years as a result of the current demand and

supply imbalance. However, we can expect some locations

to face higher rent rises than others.

Historical analysis shows it is likely to be the established

industrial precincts in the former Auckland and Manukau

City areas. As shown in the bottom right chart, these

precincts have experienced higher rent rises in the past five

years compared to other precincts, typically 25% or more.

Despite the higher rents, we expect these precincts to

remain extremely popular. Tenants are likely to accept

higher rent rises over ongoing frustrations of time delays

and rising delivery costs from travelling long distances

around Auckland’s increasing rates of traffic congestion,

which shows no signs of moderating soon.

3

Combined is a ratio of 80:20 warehouse to office

Source: Colliers International Research

Office Building Consents by Floor Area

Source: Colliers International Research

*Includes office, administration and public transport buildings

ANZ-Roy Morgan Consumer Confidence Index

Source: ANZ, Colliers International Research

Combined Prime Industrial Net Face Rents

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135

145

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New Zealand Research Report | May 2019 | Colliers International ResearchNew Zealand Research Report | May 2019 | Colliers International Research

Source: Colliers International Research

*Combination of industrial office & warehouse at a ratio of 20:80.

Note: The Wellington CBD office gross rents and yields annual percentage change has been influenced by the introduction of a Premium grade.

4

Annual Market Indicator Review – Q1 2019

Recent Commercial Property Sales

Alan McMahon

National Director

Strategic Advisory

David White

Director

Strategic Advisory

For more information contact:

Chris Dibble

Director

Research & Communications

Josh Lee

Research Analyst

Adrian Goh

Research Analyst

Emily Duncan

Research Analyst

Disclaimer: Whilst all care has been taken to provide reasonably accurate information, Colliers International cannot guarantee the validity of all data and

information utilised in preparing this research. Accordingly Colliers International New Zealand Ltd, do not make any representation of warranty, expressed

or implied, as to the accuracy or completeness of the content contained herein and no legal liability is to be assumed or implied with respect thereto.

© All content is Copyright Colliers International New Zealand Ltd, Licensed REAA 2008 and may not be reproduced without expressed permission.

Chris Farhi

Director

Strategic Advisory

Caity Pask

Senior Analyst

Strategic Advisory

Vernon Sequeira

Analyst

Strategic Advisory

Colliers International

Level 27, SAP

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151 Queen Street

Auckland

+64 9 358 1888

3 Monahan Road

Auckland | $12,680,000 | 5.25%

Property Sector

Prime Rents

(% Change)

Prime Capital Values

(% Change)Vacancy Rate

12-Months to Mar-19 12-Months to Mar-19 2017 2018

Office Net Face Based on Net Face Overall (December)

Auckland CBD 1.5% 9.9% 5.9% 5.2%

Office Gross Face Based on Net Face Overall (December)

Wellington CBD 4.4% 3.7% 7.4% 6.2%

Office Net Face Based on Net Face Overall (September)

Auckland Metropolitan 3.2% 13.2% 5.1% 6.7%

Industrial* Net Face Based on Net Face Overall (February)

Auckland 4.5% 15.3% 2.1% (2018) 1.5% (2019)

Industrial* Gross Face Based on Net Face Overall (November)

Wellington 9.6% 11.0% 2.1% 1.5%

Industrial* Net Face Based on Net Face Overall (September)

Christchurch 0.0% 7.5% 1.9% (2016) N/A

Retail Net Face Based on Net Face Overall (December)

Auckland CBD 0.0% 0.0% 3.4% 3.9%

Retail Gross Face Based on Net Face Overall (December)

Wellington CBD 3.0% 3.9% 6.8% 6.1%

12 Andrew Baxter Drive

Auckland | $8,050,000 | 5.28%

43-47 Stonedon Drive

Auckland | $8,000,000 | 5.77%