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NZ New long term leases reveal growing market confidence

Property Here - Saturday, June 01, 2013

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Large companies being ready to commit to long-term lease agreements is a clear sign that the commercial and industrial property cycle is moving from a tentative recovery stage into a period of growing confidence and consolidation, says John Church, Bayleys' general manager commercial and industrial, in his introduction to Bayleys' latest Total Property magazine.

In the aftermath of the GFC, business focus was mostly short-term and lease terms reflected that, Church says. "However, we are now seeing the re-emergence of leases of nine years and more - with multinationals and large New Zealand companies leading the way."

The two biggest leases of new office space concluded in the last 12 months - both negotiated by Paul Hain of Bayleys' Auckland office - reinforce this point, he says. Watercare Services has taken a 12-year lease over 6000sq m of space in a Newmarket building nearing completion while Lion New Zealand has committed to a 10-year term on more than 5000sq m of space in new Freemans Bay premises, where it is joining another multinational, GHD, which is on a new 12-year lease.

In Hamilton, which is undergoing a development resurgence, two new CBD office buildings are under construction. One has recently floated Mighty River Power as its anchor tenant on a 15-year lease while the other has long-term tenancies to PwC and Southern Cross Healthcare. In Wellington, Australasian company BJ Ball Papers has renewed its lease for another 10 years on its distribution centre in the Ngauranga Gorge.

"These examples are a good, solid indication that business once again has sufficient confidence in the future to make long-term commitments to big-ticket overheads like accommodation," says Church. "All commercial property recoveries require a sound occupational base to be truly sustainable. This drives leasing and hence development activity and creates new and better opportunities for property investors.

"The Lion and GHD leases meant the developer, Mansons TCLM, could put its fully occupied Freemans Bay property up for sale, leading to a $63 million sale by Bayleys and resulting in a good outcome for both the vendor and the investment market. And BJ Ball's long-term recommitment to its premises meant the property's owner had a very saleable product which our Wellington office found a buyer for at a healthy 7.2 per cent yield on its $5.2 million sale price.

"There will be plenty more examples of this occurring as the commercial property sector continues to mature and strengthen, giving both sellers and buyers greater confidence in the market," Church predicts.