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Market Comments: Commercial May 2017

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.

The Reserve Bank (RBNZ) continues to manipulate the Official Cash Rate intending to control the market and monitor inflation.  With earlier inflation running below 1%, the Official Cash Rate (OCR) was lowered in November by 25 basis points to 1.75% with the intention of increasing economic activity and achieving the Reserve Bank’s inflation targets.  In addition, the Reserve Bank is keeping a watch on the housing market, especially activity in Auckland. 

The OCR was held at 1.75% in February and May 2017.  Recent inflation statistics indicate that CPI inflation for the March 2017 quarter was 2.20% which is back within the RBNZ target range of between 1% and 3%.