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April 29, 2015

Local and offshore investors are spending up large in the country’s retail sector.

For the past few years, transactions in the office sector have continued to dominate New Zealand’s commercial property market. According to JLL NZ’s latest annual Transaction Trends report, total sales values across the major sectors (office, retail and industrial) increased by 142% year on year. While office assets continue to remain the most popular class of commercial property, the real growth story belonged to the retail sector.
The report indicated that retail is hot on the heels of the office sector with NZD 2 billion worth of retail properties changing hands across the country in 2014, an increase of a whopping 478% when compared with the previous year and a record high.

According to Chris Beasleigh from the Retail Sales and Leasing team at JLL New Zealand, “Retail assets in the form of shopping malls and other large formats are now at the front of investor’s minds which has resulted in an all-time high of activity for retail and a level that has never been seen before. With large amounts of foreign capital driving up sales volumes, retail assets made up the majority of transactions in the NZD +100 million deals done, with only one office sale completed in this category.”

A large driver of this exponential growth was a number of large regional shopping centres that transacted, including GIC’s and PSP Investments. GIC purchased a 49% stake in five Westfield’s shopping centres for NZD 1 billion, whilst the PSP Investments deal added NZD 600 million to retail total.

The continued good performance of large retail shopping centres that are able to dominate their catchment and deliver sustained income streams across Asia Pacific has encouraged intense competition for investment grade product. Sovereign wealth funds, pension funds, and high net worth individuals with excess capital have invested in the retail space, and are likely to continue to do so through 2015. These groups have primarily focused on the +NZD 20 million category, with assets typically sporting strong rent roles, backed by large brands names, and in locations which are likely to experience future growth.

“The investor pool is likely to remain balanced throughout the year with private entities as well as institutions, both local and foreign, playing a large role. A key factor in determining the sales profile for the year ahead will be the party or parties that purchase the balance of the Westfield portfolio and any of the large retail assets currently rumoured to be on the market”, says Justin Kean, Director of Research and Consulting at JLL and author of the report.

Kean continues, “The New Zealand market is relatively new and unexplored on the international scene. The PSP and GIC transactions have focussed international attention on New Zealand as an alternative core proposition that also provides strong risk adjusted returns.”

Overseas investment into commercial property has reached a new high. Attractive yields, robust economic data, and stable risk profile have attracted foreign capital. Investors from Indonesia, China, and Germany were active in purchasing property in 2014.

While the office sector led the way, it was a notable year for the retail segment. Interest continues to broaden into the retail sector and retail assets in the form of shopping malls and other large formats, is at the front of investors’ minds.

 

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