Property Matters: 31 October 2018

Tourism sector strong

Recent Stats NZ data indicates that travellers spent a record number of nights at hotels, motels, and holiday parks in the August 2018 year, however nights at backpackers fell. Our research indicates that the local Nelson/Tasman tourism market has followed the national trend with most tourist accommodation providers having seen growth in the past year.

Stats NZ data indicates that almost forty-million guest nights were spent at short-term commercial accommodation within New Zealand in the year to August. Furthermore, guest nights at hotels have more than doubled in the past 20 years and are now the most popular type of accommodation.

In the year to August 2018 the number of guest nights were:

  • 14 million at hotels, up 3.6%
  • 12 million at motels, up 0.9%
  • 8 million at holiday parks, up 6.2%
  • 5 million at backpackers, down 1.6%.

The strongest growth areas were Christchurch, Queenstown-Lakes, and Rotorua. Auckland fell 1.4% following a record August 2017 year. We would note that hosted and private accommodation, such as bed and breakfasts and holiday homes, are not included in the Stats NZ figures.

In addition to the above, the MBIE International Visitor Survey indicates that visitors are also spending more. For the year ending June 2018, total visitor spend was up 9% to $11 billion. The strong growth continues to increase from high yielding Australian, US and Chinese markets with both the Chinese and US visitor arrivals increasing.

The positive tourism statistics has led to a recent increase in the demand for tourist accommodation properties in greater Nelson. Over the past 24 – 36 months there has been a noticeable increase in the number of local market Leasehold Interest, Freehold Interest, and full Going Concern tourist accommodation sales. Generally, recent sales indicate that the yields achieved for well-located good quality tourist accommodation complexes with a solid trading history continue to trend down. We consider this is a result in the positive tourist market conditions.

Industrial market improving

Nelson Industrial MarketThe industrial property investment sector has been a strong performer over recent years as market conditions have driven rental increase and yield compression.

The industrial rental market in greater Nelson was subdued for several years following the Global Financial Crisis. At this time tenants sought to match their financial situation with their premises. With few exceptions, industrial rentals showed limited growth through to 2014. From 2014 onwards, vacancy levels have fallen considerably and there is now a very limited number of industrial premises available for lease on the open market. There has also been a notable upsurge in demand for large-scale industrial property mainly from larger national companies who are expanding their local business operation.

In general, rental rates for well-located light industrial/service commercial premises continue to increase as the current demand has edged ahead of supply. Developers are also seeking a fair return on escalating development costs, which in turn has led to underlying industrial rents increasing over the past 24 months.

Due to the increased leasing demand for modern well-located industrial premises, several new industrial developments have been completed on previously vacant industrial land holdings within the greater Nelson area over the past 24 months. This has led to a shortage of vacant industrial sections available for sale on the open market. Our research of recent re-sales of vacant industrial sections has indicated an increase in sale price achieved when compared with the previous sale of the same property.

In addition to the above, recent industrial property sales have indicated that yields have fallen significantly over the past four years. There is currently strong demand for industrial property well-suited for future owner occupation. Historical low interest rates have made owner occupation a viable option for a number of businesses. This in turn has increased the demand for any well-located modern industrial property which has been placed on the open market for sale with vacant possession over the past 24 months. Furthermore, recent sales indicate that there is also strong demand for well-leased, modern, single tenant industrial properties.

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