International investors pile into New Zealand
Overseas investors have been showing a real zeal for New Zealand.
Investment in Auckland’s office market hit NZ$2 billion last year, up from NZ$1.44 billion in 2017, and above the previous record of NZ$1.48 billion set in 2014, according to data from JLL.
This record investment was fueled by overseas investors who made up 68 percent of the deals, up from 46 percent in 2017.
New Zealand has a growing reputation of being a safe haven for long term investors in an increasingly uncertain global economy, says Paul Winstanley, Head of Research and Consultancy, New Zealand at JLL.
“Strong demand is being boosted by a limited volume of new developments – restrained by labour and material costs in the market. And, at a macro level, New Zealand has a solid, sustainable and predictably growing economy - 3% per-annum as of September 2018 - with strong key future demographic indicators.”
Last year U.S. firm Invesco bought Auckland’s Chorus House and 50 percent of the city’s ANZ Centre. U.S. giant Blackstone picked up the VXV Portfolio, while PAG secured 155 Fanshawe Street. Between them these combined investments totaled NZ$1.24 billion into prime Auckland offices.
And, the trend looks likely to remain, according to Ross Bolton, Director of Capital Markets, New Zealand at JLL, who says there is a “critical mass of global capital looking to deploy in the country.”
In 2018, there was US$19.5 billion of unsatisfied offshore capital allocated for Australasia, up from US$14.1 billion in 2017, according to JLL data.
“The search for quality and scalable office assets feels relentless,” says Bolton.
Foreign investment in New Zealand has been on the rise since 2014, with the Auckland office market seeing most of the benefit.
“For existing and prospective investors, an attractive pool of quality of assets which have come to market together with strong underlying investment market fundamentals have proved an attractive combination,” says Winstanley.
These fundamentals include low vacancy rates, increasing occupier demands for better staff environments and superior space as well as key planned improvements to Auckland’s infrastructure including the City Rail Link, Ameti Eastern Busway, Sky Path, East-West link and potential for a new light rail lines serving South and West Auckland.
After booming levels of investment, a lack of investment-grade stock has started to hinder foreign players with an interest in the country.
There are currently just four premium-grade assets in Auckland’s office market at the moment, with a further one - Commercial Bay - expected to come in the fourth quarter.
As a result, overseas investors are starting to explore alternative strategies such as Joint-Venture and Club Structure arrangements with domestic groups, to gain exposure to quality assets at scale and who have the infrastructure to execute, on the ground, says Bolton.
And while development is limited, the capital is starting to benefit from a number of new developments aimed at meeting increasing demand. New schemes being brought to market include Manson TCLM’s 155 Fanshawe Street, targeting a 6-star, Green Star rating.
The Wynyard Quarter, being partly re-developed by Precinct Properties, in partnership with local council, “has really raised the bar for architectural standards, and Auckland will reap the rewards in the medium to long term,” Winstanley says.
“There is definitely great energy and enthusiasm for Auckland offices from developers, investors and occupiers alike presently and all in equal measure,” he says.