The attraction of the Provinces

Yields in provincial New Zealand are proving a desirable proposition to those who have traditionally invested in the main centres as they look for higher returns on their investment.

The provincial property boom we are currently experiencing has been unprecedented. And there are still more factors that are bound to push the value of Commercial Property in the provinces even higher. Demand for well-leased investment properties remains high in most markets, with a lot of investor interest now focusing outside the main centres and in the provinces.

Investors know that the critical attributes of a good investment property include those properties that are new or seismically strong, are well tenanted with a strong lease, are in a location of growth and those with the prospect of rental growth over the term of the lease. Provincial New Zealand delivers such properties.

With the growth of Business and Industrial Parks, and a focus on transport, freight and logistic hubs, developers and investors are turning their eyes to the regions, looking for returns they can't achieve in the cities.

Business and Industrial Parks such as Waharoa Industrial Park in Waharoa, Irongate in Hastings, Izone Business Park in Rolleston, Ashburton Business Park in Ashburton and Washdyke Business Park in Timaru are providing investors with fresh, easy to manage buildings with long term tenants that enjoy the security of the "clustering effect" Business Parks offer them.

While many of the locations mentioned above were historically achieving yields of anything from 7-15%, it is now commonplace for these towns to achieve yields in the range of 5.5% to 7.00%, with some properties of exceptional quality achieving yields south of 5.5%.

Older properties that don't exhibit all the desired characteristics, however, i.e. good seismic ratings, strong lease covenants and rental growth prospects, inevitably are reflected in the yield and are more likely to fall within the 7.5 to 8.5% yield range, allowing the smaller investor the opportunity to invest in a growth market.

So why is investing in the provinces so attractive?

Entry into commercial investment is often more affordable in the provinces due to lower land values and more available space (supply and demand). Cities where land and space are at a premium mean developers and building owners can command maximum prices, often selling investments in very competitive situations with multi-offers seen on many properties. Auction or Tender are frequently-used methods of sale to extract the maximum sales price, which may be from national or international buyers. In many instances, mum and dad investors are priced out of this market.

On the other side of the fence, investors are getting brand new, state of the art buildings, often of simple, low maintenance construction, long term stable tenants in a growth location. Why wouldn't one invest in this type of market?

Taupo Commercial Sales Consultant, Ulf Furher, says, "In the city, councils are often slow to react and find it easier to say "no" to growth than "yes". Provincial councils are much smaller and tend to be forward-facing to development and growth projects because, at the end of the day, this all adds to the growth of the town and the councils' coffers."What is prevalent is the greater focus on the development of Business and Industrial Parks outside city centres. This has been commonplace in the likes of the UK for a long time, with these parks becoming a thriving hub of business activity and a nucleus of shared ideas.

While interest rates remain relatively low, there will continue to be substantial provincial drift. Wellington and Auckland migrants are a strong driver. The Property Brokers commercial team are currently seeing a strong sellers' market, with substantially more buyers than sellers. Auckland investors are now looking to heartland New Zealand to discover investments with a good yield.

Property Brokers Commercial – Your Provincial Experts. Commercial Sales & Leasing, Property Management & Building Compliance Services. We do it all!

Property Brokers Commercial property division offer a full spectrum commercial real estate, business broking and exit strategy service. Our commercial salespeople come from extensive business backgrounds in many different industries, and they take pride in the expert knowledge they have of the local property markets.

For more information, please visit: pb.co.nz/commercial or contact us today.