Archive | Market

Opex rises in city & enighbourhood centres, falls in medium range

Operating expenses rose 10.15% in neighbourhood & town centres this year, rose 18.9% in city centres, but fell 11.34% in district & regional centres, the Property Council’s annual survey shows.

The median in neighbourhood & town centres was $47.31/m² (up from $42.95/m²), district & regional centres $82.13/m² (down from $92.63/m²), and city centres $128.90/m² (up from $108.41/m²).

In all categories, rates were down slightly – neighbourhood & town centres $14.05/m², district & regional centres $15.34/mv and city centres $19.48/m².

The cost of cleaning rose 26% in city centres, from $26.89/m² to $33.78/m². In district & regional centres it was down slightly to $17.79/m² and in neighbourhood & town centres it was down almost $2 to $7.92/m².

Administration, including centre management fees, fell slightly in city centres to $22.19/m², rose by $4/m² to $25.45/m² in district & regional centres, and fell slightly to $7.04/m² in neighbourhood & town centres.

The cost of insurance rose 64% in city centres to a median $6.66/m², 23% to $4.93/m² in district & regional centres and 40% to $4.28/m² in neighbourhood & own centres.

The survey covered 47 shopping centres containing 556,302m².

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Syndicator offers Opera House parking lot

Listed Australian financial services company Mariner Financial Ltd has launched a syndicated infrastructure trust with the 1200-space Sydney Opera House carpark as its main asset.

Mariner, head by Challenger International Ltd’s founder & former managing director Bill Ireland, is primarily focused on servicing Australia’s growing superannuation market by providing uniquely structured investment & retirement income solutions.

Its Opera House parking investment, the Mariner Infrastructure Trust No. 1, is offering returns of up to 19.8%/year (that’s in the 3rd year; in the first year the forecast cash return is 8.6%) with significant tax deferral.

Mariner has entered into a contract in May to buy the remaining 38 years & 4 months of the 50-year lease for $A75 million.

It intends to sublet up to 250 bays at prepaid rents of up to $A90,000 for 38 years (about $A45/week), rent the remaining 950 bays to Wilson Parking and sell the carpark at a time when it can maximise the return.

Before September 2009, unitholders will be offered the choice of continuing the trust or realising their asset. If they adopt the 2nd course, Mariner can have the trust listed.

The trust’s $A25.85 million offer closes at the end of February.

Mariner’s head of property, Andrew Sanders, said the parking lot was under-utilised – occupancy of 56% compared to competitors boasting average occupancy of 92%.

Website: Mariner

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Solar heating incentive revised

The Energy Efficiency & Conservation Authority has revised the incentive scheme for solar heating system purchases.

Under the scheme, money can be borrowed interest-free to buy & install a solar water-heating system.

The authority’s chief executive, Heather Staley, said a solar system could cut a household’s water-heating costs by up to 75%

She said 1700 new systems had been installed in the past 12 months and 22,000 houses now used solar heating, but the authority and the Solar Industry Association were looking at ways of increasing solar use.

Website: Solar Industry Association

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Morley sees caution but no Armageddon

The Real Estate Institute’s national median sale price hit a new record in October, rising $2000 from September to $252,000.

Sales also rose, from 7854 to 8191, and the median number of days to sell was cut from 31 to 30 days.

The Auckland region’s median sale price rose by $3000 to $340,000, but sales fell slightly from September to 2667 – a thousand down on October 2003.

It took a median 32 days to sell in Auckland, up one day, suggesting to Real Estate Institute president Howard Morley the market was “still subject to a degree of caution”.

He said this was “driven mainly by  recent interest rates increases & suggestions by some media commentators of big decreases in prices which, although not apparent from the REINZ statistics, have affected confidence in New Zealand’s largest property market.

“We believe that recent reduction in interest rates and the fact that it now seems clear that the Auckland property market is successfully resisting predictions of an imminent Armageddon, will help to improve confidence in coming months.”

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Commercial & industrial property expensive, but not as expensive as residential, bank economist finds

“Commercial & industrial property: creaky foundations or pillars of support?” ANZ Bank economist Cameron Bagrie asked in a market commentary this week. The material below is taken from his paper, but isn’t the whole paper.

“Economic barometers are giving no clear signal on commercial & industrial property prices. Higher interest rates have shifted valuations into the overvalued zone, but the magnitude is small. With no apparent supply-demand mismatch, and economic prospects remaining sound, commercial & industrial property remains a solid but unspectacular asset class for portfolios,” Mr Bagrie said.

“The market is awash with liquidity looking for a home. With the residential market looking extended, migration receding, yet economic prospects remaining sound, attention is turning to the commercial & industrial sector.”

In his research article, he checked the foundations underpinning the commercial & industrial sector:

Commercial & industrial rental growth has averaged a meagre 1%/year since 1991. With inflation averaging 2% over the period, real rents have been in decline. Stripping out the period of declining rents from 1991-1993 – a period where the commercial & industrial sector suffered from excess supply – raises annual rent growth to 1.5%, but it has still not kept pace with inflation.

Rents have fallen behind construction costs (the replacement cost of the building). Non-residential construction costs have broadly mirrored the rate of inflation. However, they have risen sharply recently (more than 10%) and this development is yet to be reflected in rents.

Price:earnings ratios

On a conventional price:earnings (p:e) ratio – the ratio of property prices to rents – commercial & residential property is looking expensive. The ratio has increased by 50% since 1991.

Lower interest rates imply a higher p:e. Easing inflation & a slightly lower real component to New Zealand interest rates has lowered average borrowing costs by around 40% since the early 1990s. This has improved affordability and lowered the yield required to cover the cost of capital.

But yields have fallen below the cost of capital. Commercial & industrial yields are sitting around 7-9%. Yields are at the lower end in strong-performing regions and where land & property is in scarce supply. The weighted average cost of capital for publicly listed property firms sits closer to 10%. Financing rates on commercial & industrial developments generally sit north of 8%.

Further capital gains and/or higher gross yields are being banked upon and the market needs to perform above average going forward. Given where interest rates sit, associated property expenses &  the risk associated with property investment, the market is implicitly banking on annual capital gains in the order of 5% over the next 2 years.

To put this in perspective, in the long run commercial property prices should increase somewhere between the rate of inflation (2% on average) & real economic growth. The former should be the long-run driver of construction costs, while the value of land as a scarce resource is more likely to increase in line with the rate of real economic growth (the economy’s trend capacity sits around 3%).

Historically, nominal gains have easily surpassed 5% on average (although real gains have averaged 2.5%/year). Inflation is expected to settle around 2% on average going forward, and it is difficult to foresee a further structural decline in borrowing costs.

Our baseline models suggest the market is mildly overvalued. However, the degree of overvaluation is mild (5%) relative to the residential market, which is generally thought to be 5-10% overvalued.

But sound economic prospects and the lack of pending supply-demand mismatch imply prospects remain sound. Vacancy rates are low and we suspect there is an element of catch-up from the rental side of the equation pending. A positive output gap (demand) will persist well into 2005. The ratio of non-residential building consents to gdp (a measure of supply-demand mismatch) has remained static for the past 5 years. Given the historical relationship with the output gap, and stage in the cycle, our baseline model anticipates real price gains of just below 1%/quarter over the coming year.

But don’t go betting on further double-digit gains. Economic barometers are currently giving a mildly bearish view on commercial & industrial property prices and we are mindful of a degree of spillover into other property segments if aspects of the residential market pull back.

Higher interest rates have shifted valuations into the overvalued zone. However the degree of disequilibrium is small relative to history. With no apparent supply-demand mismatch (in contrast to the residential market), and economic prospects remaining sound, commercial & industrial property will remain a solid yet unspectacular asset class for portfolios.

Website: ANZ Bank

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Contract! Industrial, November 2004

The Contract! pages are an index of sales & leasing transactions by sector, and by month (starting 18 October 2004). They will link to items on local pages on the Propbd/Neighbourhoods website.

Want to get your name in lights? Call Bob Dey on 021 894 858 or email [email protected].

12 November 2004:

Nylex Saleyards Rd property goes for $4.9 million

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Backpacker capacity still soaring, but occupancy stumbles

Capacity in the more expensive parts of the short-term accommodation industry – hotels, resorts, motels & apartments – doesn’t shift up or down very quickly. But backpackers? Capacity & use have just kept rocketing.

It’s all been a rosy picture for the bottom end of the market, but there are indications of a change in that trend.

The number of hotels in the country has fallen a few points every month for the past year while the number of motels & apartments has risen marginally most months. Backpacker establishment numbers, on the other hand, have risen by more than 10% in 5 of the last 6 months and capacity has risen by more than 10% – as much as 14.5% – in 7 of the last 8 months.

From being a novelty a few short years ago, backpacker capacity is now at 626,000 stay unit nights, compared to 759,000 for motels & 847,000 for hotels.

While travellers have obliged all these new backpacker business owners by turning up in droves often bigger than the capacity gains each month, the picture has changed this year, with declines in occupancy rate in 8 of the past 9 months indicating supply has at last caught up and perhaps passed demand.

Hotel occupancy has been strong this year (2 months with 12.2% gains, another 2 months over 8%), motel occupancy variable, the backpacker year started with small occupancy slippages (0.6%, 1.2%, 3.1%), fell by 4.4% & 7.3% in the next 2 months then improved.

In September, capacity rose 12.8%, guest nights rose 9.7%, the average stay was down 2.6% and occupancy fell 4.7% to 38.4%.

In the hotel sector, the average stay was also down (by 2.2%), but guest nights rose 6.2% compared to a 2% rise in capacity, lifting occupancy by 4.3% to 55.1%.

Motel capacity rose 3%, guest nights 3.6% for an occupancy gain of 0.5% to 52.8%.

Across the whole short-term accommodation industry, including caravan parks & camping grounds, 2.19 million guest nights were taken up.

Auckland occupancy was down 4.8% to 55.8%,, Bay of Plenty improved by 6.7% to 52.6%, Wellington was down 4.9% to 58.3%, the West Coast picked up 8.9% to 33.5%, Otago picked up 5.2% to 57.7% and all was quiet in Southland, with a 13% decline to 32% occupancy.

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Deutsche trust awards management of NRM Building to JLL

The DB RREEF Trust has appointed Jones Lang LaSalle’s management division as building manager for the new NRM Building in Auckland.

The Manson Developments Ltd project under construction on the old Northern Roller Mills site between Fort St and the top of Shortland St, is DB RREEF’s first New Zealand investment.

The Deutsche Office Trust contracted in August to buy it on completion for $110.4 million. The office trust & 2 other Deutsche trusts in Australia decided at the same time to merge into the new DB RREEF Trust, with their units stapled.

The building has 18,758m² over 28 levels.

“Our appointment to this key mandate reinforces our dominance of the prime office building management sector in New Zealand. We are able to offer our clients a combination of people, infrastructure & experience that is unrivalled in the market,” JLL management services director John Dunn said.

JLL has been engaged to manage the commissioning of the building before practical completion, which is due in April or May 2005. The company has also been signed for the ongoing property & facilities management of the location.

JLL also manages Kitchener Group and AMP portfolios.

Earlier story:

5 August 2004: Major restructure at Deutsche Bank Australia Real Estate

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ING fund adds to Australian small hotels portfolio

ING Real Estate Entertainment Fund has bought 2 hotels for $A12.4 million, taking its portfolio to $A110 million.

It’s buying the Dolphin on Crown St, Surry Hills, in Sydney with vacant possession, on a 14% yield as a going concern. Icon Hospitality Management will go in on a new 15-year lease.

Bannan Pty Ltd (Western Plaza Hotel Corp of Perth), seller of the Elephant & Wheelbarrow Hotel in Fortitude Valley, Queensland, will stay on as operator for the remaining 9 years of an existing lease. Western Plaza has 14 hotels nationally and is looking for more investment opportunities. The ING fund is buying this hotel on a 9% initial freehold yield.

Settlement is expected by 30 November. The fund is seeking up to $A7 million in new equity to secure the deal.

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Top end picks up for Barfoot’s, average price on plateau

Sales of top-end homes picked up for Barfoot & Thompson in October – 15% of its sales for the month were worth more than $1 million, up from11% in September.

The average price for October, $428,125, was virtually unchanged from the 3 months before a dip in September, suggesting to Barfoot’s director Peter Thompson that prices are plateauing.

“While the volume of sales has been trending down since the beginning of the year, prices are relatively stable,” he said.

911 properties were sold in October, 918 in September. The average this year is 1048/month. Mr Thompson said 40% of sales were for more than $500,000, 22% for more than $750,000, 15% for more than $1 million.

Rent rise not seen as trend

Average rent for tenants dealing with Barfoot’s increased substantially, from $329/week in September to $341/week in October. However, Mr Thompson said the company’s rental staff the new average was the result of a small number of high-priced rentals rather than any significant on-going trend.

The number of houses & units let by the company during October was down from 638 in September to 608, and from 648 in October 2003.

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