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Market Comments: Commercial - March 2015

Nelson Market

 The local commercial property market has maintained a steady level of sales activity since 2012.  Analysis continues to show a strengthening of yields for well located, securely leased properties with a high seismic rating while those less favourably located, with shorter lease terms or a low seismic rating have seen a weakening of yields.  Financiers and investors remain keenly interested in weighted average lease terms and seismic rating in considering the risk profile of any property.  

In general, rental rates for modern, well located premises are under pressure to increase as demand edges ahead of supply and developers seek a fair return on escalating development costs.  Poor demand continues for second-tier and older accommodation types with rental rates showing little change.

Increased insurance premiums are persisting, especially for older buildings not meeting current seismic strength requirements.  We anticipate that such properties will see greater levels of discounting from purchasers and tenants alike due to the higher costs and risks of ownership or occupancy.

Over the last five years Variable First Mortgage Housing Rates have ranged from a peak of 6.71% (August 2014) down to 5.36% (November 2013).  The latest increase in the OCR by the RBNZ is a signal that First Mortgage Housing Rates will increase in the near future.

According to ANZ Bank "Regional Trends" figures issued for February 2015:

"Activity was flat in the Nelson-Marlborough region in Q4, but remained 2.6% up on 12 months ago.  On the positive side of the ledger, retailing continued to improve.  Retail sales lifted 1.3% q/q in December, with the value of electronic transactions data increasing by 4.1% in Q4, the largest quarterly increase regionally.

Retail sales were 9.1% ahead of where they were last year, confirming a good year for the regions retailers.  Also adding to activity within the Nelson-Marlborough region was the real estate market.  Rural real estate sales were up 20.7% in the last three months, which was the strongest lift recorded across all regions.

Residential sales also recorded strong growth in the last three months, increasing 17.3% q/q, and are up 13.1% over the last twelve months.  While employment fell 2.7% in the December quarter, the largest regional decline recorded, it followed a strong September result.  The region’s unemployment rate of 5.6% remains just below the national average of 5.7%.

Both business and consumer confidence receded under the heat this quarter and could reflect the fact that the region started to dry out earlier than usual, especially in the eastern areas."

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