Commercial market growing

Property investor Olly Newland

The recent tax and LVR measures put in place to rein in Auckland’s supercharged residential property market appear to have had some impact.

All the latest data shows the residential market has cooled off of late.

However, this slowdown has not affected the commercial market. 

Veteran property investor Olly Newland said the prospect for the higher returns which come with commercial property investments mean the market is continuing to grow.

Increased demand means prices are higher than they used to be, which means that yields have dropped a bit.

Newland said that two or three years ago returns on commercial investments were around 8% to 10%, but they are now sitting at around 5% to 6%.

“While that is lower, compare that to the returns on residential property in Auckland… It is possible to get three times the return on a commercial property that you would get on a residential one.”

In his view, the commercial market will continue to grow as long as interest rates remain at the current low level.

“The commercial market is at around 9-9.30 on the property clock, as compared to the residential market which is hard up against it.”

Newland’s view is backed up by Colliers International.

Gareth Fraser, who is Colliers’ director of investment sales, said demand for commercial investments and add-value opportunities continues to accelerate across Auckland.

“We are seeing unprecedented yields being achieved for investment grade properties in the commercial, industrial and retail sectors.”

Further, their auction clearance rate at 73% - which is its highest level ever, he said.

“Commercial investors continue to compete for properties and chase yield. This trend will only continue in 2016, given the historically low interest rates.”

While the commercial market is an inviting one, it pays for investors to tread carefully.

Newland said the slightest slip-up can result in significant costs to an investor.

For example, there are many different types of leases with a wide array of conditions and terms.

This means that every lease needs to be scrutinised line by line, page by page, Newland said.

“There is no Tenancy Tribunal in the commercial sector. While this allows for greater flexibility in terms of bonds and tenancy terminations, it means that if you make a mistake there is no-one to turn to.”

However, it is also easy to add value to a commercial property simply by tidying up a tenancy, he added.