Commercial and Industrial market robust despite COVID-19

COVID-19 restrictions have posed many challenges across New Zealand in the latter part of 2021. Still, Colliers observes that the commercial and industrial property market remains strong as it moves into 2022.

While there was a large amount of uncertainty during the Alert Level 4 restrictions in 2020, investors and developers were less perturbed this time around. Gareth Fraser, Director of Investment Sales at Colliers, says the sentiment in the sector is positive despite Auckland facing months of restrictions and other parts of the country impacted through varying levels.

“During the five weeks of Alert Level 4 restrictions in August and September, we transacted more than 40 property sales across Auckland with a combined value of more than $250 million,” Fraser says.

“Some of those transactions were conducted off-market, while others were able to take place because the campaign was launched far enough in advance of the lockdown to enable buyers to inspect the properties before the restrictions were in place.

“In 2021, people had greater access to technology with more tools to be able to work remotely, which contributes to improved productivity across the industry.

“While we experienced a degree of scepticism about the immediate future of commercial property during last year’s national lockdown, the market rebounded so strongly that investors were more relaxed and optimistic when this year’s restrictions were enforced, meaning the market remained strong,” he concludes.

Firm demand, strong sales

Some of the notable transactions during Alert Level 4 came from a variety of commercial offerings, including eight Gull service stations spread across the North Island that sold for a combined sale price of just under $32million, representing a blended yield of 4.4%. There was also the market-leading $30.05million sale of the Synlait Milk facility in Richard Pearce Drive in Māngere brokered by the team at Colliers Highbrook.

Fraser says the demand for land suitable for terrace housing or townhouses remains insatiable among developers and investors. “This is exemplified by the recent sales of properties in the rapidly-gentrifying suburb of Panmure that are zoned residential — Terrace Housing and Apartment Buildings Zone under the Auckland Unitary Plan, which is a high-intensity zone enabling a greater density of development than previously provided for. The sales were all over $2,700 per square metre on land; one was over $3,000 per square metre, while one sold nine days before auction day. All were sold to developers who see the vast potential on offer in properties of this nature.

“The flexible zoning gives developers a range of options for the future. The Government’s October announcement regarding housing density has only injected further optimism in the sector around what can be built in the future.”

A positive outlook

Given Alert Level 4 restrictions were only in place for a short period outside of Auckland compared to last year’s lengthy national lockdown, it helped the market remain in a good position. As COVID-19 restrictions ease and we look ahead to next year, Fraser says the market has ramped up significantly.

“Following the initial period of sales early in Alert Level 4, there was a two-to-three-week plateau as agencies struggled to launch new campaigns due to the inability for buyers to inspect. But the announcement of Alert Level 3 meant inspections could proceed, and campaigns commenced. During the past few months, we have seen a deluge of stock coming to the market and a huge amount of off-market activity,” he says.

“October to December is usually the busiest time in the market as everyone focuses on the Christmas deadline, but that was pushed into overdrive this year due to the backlog caused by COVID-19.

“Whilst inspections are more cumbersome due to compliance with COVID-19 restrictions, running campaigns remotely has become the new normal, including online auctions and prospecting, proposals, negotiations, and marketing meetings taking place via video calls.”

Fraser says the knock-on effect of the COVID-19 backlog means it is likely that 2022 will get off to a faster start than usual.

“Generally, the market takes a little while to get going in the new year as people slowly return to work. We think we will see more stock on the market in January and February 2022.

“This is the direct result of many campaigns being deferred from 2021 because of the lag effect of time lost in Alert Level 4 as some vendors wanted to wait until the restrictions eased before they launched their campaign.”

Property investment — an attractive prospect

Colliers’ recent research suggests that commercial property investment remains an attractive investment option, especially in a high inflation environment and low returns from term deposits. While increases in interest rates are occurring, these are well-signalled, incrementally adjusted, and from a low base. The research suggests a strong and growing number of buyers are searching and competing for a small pool of high-calibre properties. With the impact of rising interest rates upon market activity likely to be limited, this provides a clear signal for an active market ahead.

In 2021, people had greater access to technology with more tools to be able to work remotely, which contributes to improved productivity across the industry.