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NOVEMBER 2012 | COLLIERS INTERNATIONAL RESEARCH NEW ZEALAND RESEARCH REPORT THE HOUSING ISSUE Affordable housing is in the news again as the government responds AUCKLAND REGION RESIDENTIAL RENTALS – ALL TYPES to the Productivity Commission’s 2010 report and the associated debates around the RMA, intensification, land supply, development 1.6% 2.0% contributions and so on. The land supply argument rests on the contention that developers will sell their product more cheaply if the 1 bdm cost to develop is reduced and there is more competition from other 11.6% 19.5% 2 bdms developers offering similar products. An examination of the market throws this assertion into doubt. 3 bdms 4 bdms Our knowledge gathered through independent research, which involves examining historic data on house sales and rentals, 33.8% 5+ bdms 31.3% suggests that the government response touches on all the key Unknown issues, and will help nudge the market towards some solutions. However one of the key planks of the strategy, increasing land supply, may do little to help on its own. Source: Property IQ & Colliers International Research * All DBH recorded lettings in 2010 and 2011 (40,000 approx) Currently the most commonly sold dwelling in Auckland is a three bedroom standalone dwelling. But, the predominant type being built AUCKLAND REGION THREE BEDROOM SALES AS PROPORTION OF for sale is a four bedroom standalone dwelling. Similarly, records of OVERALL SALES houses being rented show that more three bedroom houses are Auckland City rented in greater Auckland than any other type, except in the 54.5% 50.1% 37.9% former Auckland City area where two bedroom dwellings are more Waitakere commonly rented than any other type. North Shore 56.4% Manukau The reason why larger houses are continuing to dominate the new Rodney build landscape is that they are the most profitable. Single storey construction is cheapest, and there are enough people in the market Papakura 45.8% at any time to absorb the new houses being offered for sale. 50.8% Franklin However we can be pretty certain that the buyers of these large new houses are already property owners. It is not the responsibility of private property developers to provide affordable housing. Their 50.6% job is to maximise profits, and they do that very effectively by giving Source: Property IQ & Colliers International Research that section of the market that can afford to buy, what it wants. The vast majority of potential house buyers who can’t afford big new houses are not catered for at present to any significant extent. AUCKLAND REGION AVERAGE BUILDING AREA (m²) New Dwelling Sales All Dwelling Sales So the danger is that as new land is released, particularly greenfield sites some distance from urban nodes, it will be developed in a style 250 and at a price point that only enables existing house owners to buy. 200 Generally speaking these sites are well suited to this form of dwelling as the market will not find medium or high density housing 150 attractive in these somewhat remote locations. New dwelling sales average building area 100 July 11 – June 12 541 m² 50 All dwelling sales average building area July 11 – June 12 606 m² - Alan McMahon Jul 05 - Jul 06 - Jul 07 - Jul 08 - Jul 09 - Jul 10 - Jul 11 - National Director, Research and Consulting Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 email@example.com Source: Property IQ & Colliers International Research www.colliers.co.nz
NOVEMBER 2012 | RESEARCH REPORT | COLLIERS INTERNATIONAL RESEARCH THE HOUSING ISSUE CONTINUED… AUCKLAND REGION AVERAGE LAND AREA (m²) What we should be attempting is to prioritise the release of New Dwelling Sales All Dwelling Sales sites for which the highest and best use is medium or high 700 density dwellings. These will typically be brownfields sites close to urban nodes or to the CBD. 600 500 Developers will not reduce their prices unless they have to. 400 New dwelling sales average land area If the consequence of more efficiently processed resource July 11 – June 12 541 m² 300 consent applications is less overall cost and time to develop, then the initial impact will be that developers make 200 All dwelling sales average land area more profit, and the secondary effect, perversely, may be 100 July 11 – June 12 606 m² increasing land costs. Relying on competition to reduce 0 prices and increase choice in a market which looks to be Jul 05 - Jul 06 - Jul 07 - Jul 08 - Jul 09 - Jul 10 - Jul 11 - chronically undersupplied for some years hence, is Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 optimistic. Decreasing development costs need to be Source: Property IQ & Colliers International Research accompanied by real and significant increased brownfield and greenfield land supply if this unintended consequence is to be avoided. COMMERCIAL INTEREST RATE GUIDE 3 Year Term (Indicative Borrowing Rate) Council or government’s ability to control these unintended consequences is through regulation. In Jan-12 5.49% Auckland that is most clearly going to be via the new Feb-12 5.42% Unitary Plan. The balancing act facing Auckland Council in Mar-12 5.85% particular is to direct development towards providing choice and affordability through zoning while not unduly Apr-12 5.85% restricting developers’ ability to do their job. Affordability May-12 5.45% can be calculated using house price or rental cost information and household income data, for any suburb or Jun-12 5.24% area. This directs developers (and councils) to the dwelling Jul-12 5.48% types and price points that will be feasible in any given Aug-12 5.47% location. Sep-12 5.56% We should make clear that the lending rate quoted in the Oct-12 5.25% adjacent table is not necessarily what you will be offered by banks, and should be regarded as indicating medium Nov-12 5.30% term trends. Source: ANZ Bank & Colliers International NEW ZEALAND KEY ECONOMIC INDICATORS – NOVEMBER 2012 Jun-12 Jun-11 Y-o-Y Jun-12 Mar-12 Q-o-Q 2012F* 2013F* (yr rate) (yr rate) Change (qtr rate) (qtr rate) Change GDP Growth 2.6% 0.8% 1.7% 0.6% 1.0% -0.4% 1.9% 2.2% Current Account (% of GDP) -4.9% -3.8% -1.2% NA NA NA -6.2% -8.7% Sep-12 Sep-11 Y-o-Y Sep-12 Jun-12 Q-o-Q 2012F* 2013F* (yr rate) (yr rate) Change (qtr rate) (qtr rate) Change CPI Inflation 0.9% 4.6% -3.6% 0.4% 0.3% 0.1% 1.3% 1.9% Net Migration Gain (000s) -4.3 0.8 -5.0 -2.0 -0.2 -1.8 -3.3 4.7 Retail Sales (ex-auto) 2.3% 5.7% -3.4% 1.1% 0.7% 0.4% 3.2% 4.5% Unemployment Rate 6.7% 6.6% 0.1% 6.8% 6.8% 0.0% 6.8% 6.6% Oct-12 Sep-12 M-o-M Oct-11 Y-o-Y 10 Year 2012F* 2013F* (yr rate) (yr rate) Change (yr rate) Change Average Tourist Numbers Growth*** -19.2% -18.4% -79 bps 17.1% -3627 bps 4.5% NA NA Official Cash Rate 2.50% 2.50% 0 bps 2.5% 0 bps 5.18% 2.50% 2.50% 90 Day Bank Bill Rate 2.7% 2.6% 0 bps 2.8% -11 bps 5.4% 2.9% 3.4% 10 Year Government Bond 3.5% 3.6% -7 bps 4.5% -103 bps 5.5% 3.5% 3.8% Floating Mortgage Rate 5.9% 5.9% 0 bps 5.9% 1 bps 7.9% 6.5% 7.1% 3 Year Fixed Housing Rate 5.9% 5.9% 0 bps 6.7% -83 bps 8.0% NA NA Consumer Confidence** 111 112 -1% 112 -2% 118 NA NA Source: NZIER, RBNZ & Colliers International Research *December year forecast ** ANZ Roy Morgan, average is since inception not 10 year average ***Note the big changes are due to RWC P. 2 | COLLIERS INTERNATIONAL
NOVEMBER 2012 | RESEARCH REPORT | COLLIERS INTERNATIONAL RESEARCHOFFICE PROPERTY MARKET NEW ZEALAND PRIME CBD OFFICE INDICATORS Prime Rentals (% Change) 12 months to September 12 12 months forecast Auckland -0.9% 4.5% Wellington 0.2% 2.0% Christchurch - - Prime Capital Values (% Change) Auckland -0.2% 7.9% Wellington 1.3% 2.0% Old City Markets Building 106 Customs Street West Christchurch - - Viaduct Harbour Source: Colliers International Research Auckland Argosy Property has leased 3200m² of office space in the Old City MarketsThe BNZ - Business New Zealand Performance of Services Index (PSI) provides a useful building at 106 Customs Street Westindicator of demand trends for office users, just as their Performance of Manufacturing Index to Dimension Data for a 12-year term.has some relevance to industrial property demand The new PSI for September at 49.6 is the The new lease reduces the vacancy infirst time the index has been below 50 since July 2010, indicating a contraction of services the Argosy portfolio to 3.55% andaround the country. increases the weighted average lease term (WALT) to 5.2 years.There were some interesting regional variations. The northern region including Auckland wasstrong at 52.9, with Canterbury/Westland also over 50. Central, effectively the lower NorthIsland and upper South Island was negative, as was Otago/Southland. PRIME CBD OFFICE VACANCY* June 11 June 12 June 13 forecast Auckland 11.8% 9.0% 9.4% Wellington 2.7% 4.6% 4.0% Source: Colliers International Research * Refers to Premium and A Grade office vacancy onlyFeedback from contributors to the survey indicated tough times in service industries overall.This sentiment is also reflected in anecdotal feedback we receive from time to time fromconsultancy firms, in particular those that rely on property development.The lack of office development around the country may be good news for owners of existingproperty, particularly good quality assets, but an expansion of demand around the country to alevel that delivers new office stock would be welcomed by those consultants and other serviceproviders, as well as tenants seeking more accommodation options. A SELECTION OF OFFICE SALES ACTIVITY Address Location Price Vendor Purchaser Capital Value ($/m2) Yield (%) 87-93 Main Highway Ellerslie, Auckland $5,100,000 Broadway Developments 1986 Quotient Holdings 4222 7.81 Source: Colliers International Research A SELECTION OF OFFICE LEASING ACTIVITY Address Location NFA (m2) Lessor Lessee Old City Markets Building, Viaduct Harbour, Auckland 3200 Argosy Property Dimension Data 106 Customs Street West NEC House, 40 Taranaki Street Te Aro, Wellington 1479 Fern Investments Crombie Lockwood (NZ) Grant Thornton House, 215 Lambton Quay City, Wellington 1190 215 Lambton Quay Redevelopment Grant Thornton NZ Ltd Partnership Source: Colliers International Research COLLIERS INTERNATIONAL | P. 3
NOVEMBER 2012 | RESEARCH REPORT | COLLIERS INTERNATIONAL RESEARCH INDUSTRIAL PROPERTY MARKET NEW ZEALAND PRIME INDUSTRIAL INDICATORS Prime Rentals (% Change) 12 months to September 12 12 months forecast Auckland* 0.4% 2.5% Wellington** -5.4% -5.7% Christchurch*** 8.7% 5.0% Prime Capital Values (% Change)643 Great South Road,Penrose Auckland* 7.2% 5.0%Auckland Wellington** -11.0% -5.7%Ormond Taylor Holdings has sold the Christchurch*** 12.0% 5.0%vacant 2450m² warehouse on a 5306m² Source: Colliers International Researchfreehold site to a local manufacturer for *Mt Wellington$2,325,000. **Seaview ***Hornby/Islington The latest released building consent data from Statistics New Zealand shows that the value of new building consents issued for factories and industrial buildings in the Canterbury region has reached $121.9 million in the year to September 2012 the highest since 1991 and almost triple the value of the same period a year ago. The Auckland region has also experienced a moderate increase, up by 19% to $128.9 million. However, the Wellington region experienced a significant drop, down 81% from September 2011 to $5.3 million for the year to September 2012. INDUSTRIAL VACANCY August 11 August 12 August 13 forecast Auckland 5.1% 5.1% 5.0% August 10 November 11 November 12 forecast Wellington* 7.2% 8.0% 9.5% September 11 September 12 September 13 forecast Christchurch** 4.6% 6.3% 5.9% Source: Colliers International Research *Includes Seaview & Petone/Alicetown **Includes Hornby/Islington & Middleton/Sockburn The volume of manufacturing sales (seasonally adjusted) increased 0.3% in the June 2012 quarter, according to Statistics New Zealand’s Quarterly Economic Survey of Manufacturing. This is the third consecutive increase since September 2011. Seven of the 13 manufacturing industries recorded rise in the sales volume in the June 2012 quarter, with the largest upward contributions coming from transport equipment, machinery and equipment manufacturing (up 4.7%), and meat and dairy production (up 1.8%). However, partly offsetting these increases was a 9.0% decrease in petroleum and coal product manufacturing. A SELECTION OF INDUSTRIAL PROPERTY SALES ACTIVITY Address Location Price Vendor Purchaser Capital Value ($/m2) Yield (%) 643 Great South Road Penrose, Auckland $2,325,000 Ormond Taylor Holdings Local Manufacturer 949 Vacant possession 154 Wiri Station Road* Wiri, Auckland $2,800,000 Huvimoho Investments Private Owner 261 Vacant land Occupier 19 Peterkin Street Lower Hutt, Wellington $3,900,000 JR & DD Holdings JL & DM Anderson 629 9.1 Trust Source: Colliers International Research *Land sale A SELECTION OF INDUSTRIAL PROPERTY LEASING ACTIVITY Address Location GFA (m2) Lessor Lessee Unit C, 373 Neilson Street Penrose, Auckland 2000 Goodman Nominee (NZ) Local Distributor 2-20 Port Road Lower Hutt, Wellington 1090 Kaiwharawhara Trading Undisclosed Source: Colliers International Research P. 4 | COLLIERS INTERNATIONAL
NOVEMBER 2012 | RESEARCH REPORT | COLLIERS INTERNATIONAL RESEARCHRETAIL PROPERTY MARKET NEW ZEALAND PRIME CBD RETAIL INDICATORS Prime Rentals (% Change) 12 months to September 12 12 months forecast Auckland* 0.0% 1.0% Wellington** 0.0% 0.0% Christchurch*** - - Prime Capital Values (% Change) Auckland* 7.7% 2.0% 55 Clyde Road Wellington** -3.2% 0.0% Browns Bay Auckland Christchurch*** - - Source: Colliers International Research An offshore investor has purchased 55 *Queen Street Clyde Road, Browns Bay for $5,675,000 at **Lambton Quay ***City Mall a yield of 6%. The property is leased to four national andAccording to Statistics New Zealand, the Consumer Price Index (CPI) rose 0.8% in the local brand tenants including NZ Post, AMISeptember 2012 quarter when compared with the same quarter a year ago. This is the Insurance, Starbucks and a local bar.smallest annual movement since a 0.5% increase for the year to the December 1999 quarter.The most noticeable individual upward contribution came from seasonally higher prices forvegetables (up 20%), local authority rates (up 3.6%) and dwelling insurance (up 17%). CBD RETAIL VACANCY June 11 June 12 June 13 forecast Auckland 5.4% 3.4% 3.5% Wellington 5.7% 8.6% 8.5% Source: Colliers International ResearchFor the month of September 2012, total electronic card spending on retail (seasonally adjusted)fell 0.6% compared to the previous month, following a 2.1% rise in August. The value of cardspending in the core retail industries decreased 0.9% in September when motor vehicle-relatedindustries are excluded. This follows an increase of 0.9% in the previous month. Out of the fourcore retail industries, the decline in card spending was across the board with consumablesdropping the most by 0.6% ($10 million). Although sales of durable goods such as electronicsand furniture declined 0.3% ($3 million) in September, it was still 2.8% higher than a year ago.This recovery is in line with the latest ANZ-Roy Morgan Consumer Confidence survey, whichreflects an improved willingness of households to purchase major household items. Overall thetrend in household spending is a gradual recovery.We have now released our national retail report for 2012. You can download the report onhttp://www.colliers.co.nz/Find-Research/ A SELECTION OF RETAIL PROPERTY SALES ACTIVITY Address Location Price Vendor Purchaser Capital Value ($/m2) Yield (%) 55 Clyde Road Browns Bay, Auckland $5,675,000 Viaduct Waterfront Offshore Investor 4741 6.00 Investments Units D & E, 100 Don Albany, Auckland $3,500,000 Undisclosed Undisclosed 4237 7.90 McKinnon Drive 188 Kapiti Road Paraparaumu, Wellington $1,722,500 Undisclosed Undisclosed 1553 8.30 Source: Colliers International Research A SELECTION OF RETAIL PROPERTY LEASING ACTIVITY Address Location NFA (m2) Lessor Lessee Ground Floor, 212 Willis Street Te Aro, Wellington 250 Private Owner Undisclosed Source: Colliers International Research COLLIERS INTERNATIONAL | P. 5
NOVEMBER 2012 | RESEARCH REPORT | COLLIERS INTERNATIONAL RESEARCH EFFECT OF QUAKES ON THE AUCKLAND ECONOMY Text reproduced with permission from Auckland Council’s Auckland Economic Quarterly Newsletter, for more information please visit www.aucklandcouncil.govt.nz/eds – Published October 2012 by Shamubeel Eaqub, Principal Economist at NZIER. The Canterbury earthquakes caused significant INJECTION OF SKILLS personal and commercial damage. The The people who emigrated from Canterbury to implications are becoming clearer over time, Auckland appear to be those with transferrable but many uncertainties remain. skills, high incomes and wealth. There are a few reasons to suspect this. First, the cost of Auckland’s economy too has been affected by housing in the suburbs the Canterbury the earthquakes. The impacts will reverberate migrants moved to, is around 25 per cent for some years to come. The key linkages have higher than the rest of Auckland. Second, there been through people flows, housing costs, was a surge in Auckland business and financial insurance costs, flow of investment funds and services jobs following the earthquakes. If a renewed discussion on building standards these skilled, high-income and high-wealth and emergency preparedness. people are retained in Auckland it will boost regional economic performance. PEOPLE INFLOWS The most immediate impact has been through NET MIGRATION OF TAX RESIDENTS BETWEEN people flows. Many left Canterbury after the AUCKLAND AND CANTERBURY earthquake. This has been evident in school rolls and taxholder address changes. Net 250 No. of persons migration of people from Canterbury to 200 per month Auckland surged in the six months after the 150 February 2011 quake. The pace was eased since then, but is still twice as fast as before 100 the quakes. 50 0 The influx has been concentrated in Auckland 2010 2011 2012 central and surrounding suburbs like Kingsland, Mr Albert, Epsom, Remuera and Glendowie. Source: IRD The large influx of people from Canterbury added to strong international migration flows. CONSTRUCTION SECTOR CHANGES Consequently, rents and house prices have As the gargantuan reconstruction in risen at a fast pace. Canterbury gets under way, it may lead to higher construction costs and scarcity of Top 10 Suburbs for Canterbury Migrants to Auckland* labour in that sector. Construction costs will rise in Canterbury, but it is not clear if it will Auckland Central Mt Albert spill over to other parts of New Zealand. Kingsland Avondale Auckland construction costs will rise if there Albany Mt Eden an exodus of construction workers from Auckland to Canterbury. So far, there is little Glendowie Epsom evidence that construction prices are rising or Murrays Bay Onehunga that many Auckland construction workers are *House price change in the top 10 suburbs between Feb-11 and leaving. This will last as long as construction Aug-12 was 14%, compared to 9% in the rest of Auckland. Ranked activity stays relatively soft. by the cumulative number of IRD address changes by suburb NZ RETAIL REPORT 2012 Colliers International’s latest research on the New Zealand Retail Market has now been released, analysing trends in vacancy, leasing activity and rental rates. We will also release our annual New Zealand Industrial Report 2010 at the end of the month. Download our reports from http://www.colliers.co.nz/Find-Research/ Colliers International Research and Consulting Offers a Full Range of Property Solutions: • Property Investment Strategies • Market Analysis and Forecasts • Demand Studies • Feasibility Analysis • Development Management • Project Management • Make Good/Dilapidations • Building ConsultancyWhilst all care has been taken to provide reasonably accurate information within this report, Colliers International cannot guarantee the validity of all data and informationutilised in preparing this research. Accordingly Colliers International New Zealand Ltd, do not make any representations of warranty, expressed or implied, as to theaccuracy of completeness of the content contained herein and no legal liability is to be assumed or implied with respect thereto. P. | COLLIERS INTERNATIONAL