News & updates

Latest news and updates from Expedio

Market Comment August 2017

It’s obvious by now that all the banks have reduced their appetite for lending. This is being manifested in different ways – changing loan to value ratios, and being more difficult are just two of these.

Some banks are flat out saying no to new business – irrespective of the quality of the deal.

In general terms we don’t see this as being a major impediment to the market. Businesses that are doing well will still be able to borrow, and investors with a track record and sufficient equity won’t be shut out.

But where we do see a possible pull back is in the number of properties going to auction. We have voiced our view that often agents are doing their clients a dis-service by promoting auctions. We know the trite chestnuts that are trotted out as compelling reasons to take properties to auction:

  • Creates urgency to buy and competition among informed buyers
  • All due diligence and  inspections are performed prior to sale
  • Assurance that property will be sold at true market value.

And we know one of the main real reasons for promoting auctions is that it ensures a sole agency.

But what many vendors will now need to recognize that with banks changing their collective attitudes, there will inevitably be fewer cashed up buyers in the auction room ready to put their hand up.

And I believe we are seeing that already.

 


Market Comment June 2017

There certainly seems to be a tightening in availability of bank finance. The media would have us believe that this is primarily due to the Australian banks taking their capital back to Australia. But whatever the reason, anecdotally we are hearing of instances where banks have backed away from financing deals which 6 months ago they would have been falling over themselves for. That impact seems to be greater with regard to investors than owner-occupiers.

But having said that there still appears to be ample finance in most cases where the deal is well structured – particularly with regard to small and medium size  owner-occupiers. The very positive aspect coming out of this is that generally when buyers make a move, they have all their ducks in a row with regard to understanding the financing process.

Eighteen months ago there seemed to be a parade of hopefuls and wannabes. They wanted to buy. But they had not done their homework, and didn’t understand the basics of owning industrial property. But that parade appears to have stopped, and now (mostly) the would-be buyers understand the process, and the financial structure. Which saves everyone time and frustration.

Decision making times have stretched out marginally. As they always do when the market does not have the urgency it did just a few months ago.

Perhaps the most noticeable change over recent months is the willingness to be flexible with regard to location on the part of both buyers and tenants. Availability (or lack of it in certain areas) and traffic congestion are forcing decision makers to consider industrial areas that 12 months ago would have been summarily dismissed.

And very often that flexibility can be to their ultimate advantage – with regard to the type of property available, price and access to labour.


Market Comment Feb 2017

Very often when we stop to analyse the market and it’s direction we focus on the external factors – the state of the economy, what the banks are doing, what suburban accountants are saying and the projected Fonterra payout. A major aspect that very often we totally by-pass is how well individual businesses are doing. And currently that is one of the biggest drivers of the industrial real estate market. 

All around us, in the Auckland market at least, we are seeing businesses that are doing well. Doubtless we need to take into account whether the banks will lend, and the confidence business owners have in the future of the economy. But if a business is doing well and needs more space, that will ultimately drive decision making. And when you add together a lot of businesses doing well, and needing more space, that adds up to an active market. Which is what we currently have.

Enquiry levels are good – both for leasing and buying. Add to that the incentive many owners have to cash out their capital gains, and we have a combination of active buyers and active sellers. If there is any handbrake, it is that most, if not all, of the banks still seem to be in a relaxed holiday mode and taking far too many long  lunchtimes to get back to clients with answers.

The other very apparent trend is the steady escalation in rents. Over the past 18 months we have seen rents in some cases increase up to 50%. On the face of it this may seem massive, but when taking into account the relative lack of rental growth over the 10 preceding years, and increased building and land costs, is not surprising.
Unfortunately what the increase in rentals often does is cause a spike in spurious enquiry. Tenants who have rental reviews energetically running around the market looking for cheaper space – only to find it doesn’t exist.
 
February has continued the January mood, with a string of transactions which has resulted in a real backlog of refurbishment work for our crews. We have several of the upcoming opportunities here. Additionally, in fairness to sitting tenants, there are a number of other properties not listed on our website, which will be available as leases end. Call for details to match your specific enquiries.


2017 - Challenges Ahead

If we believe the media, 2017 promises to be a challenging year for our industry. Confidence will be down and finance harder to find. Plus, money will be more expensive. Decisions will take longer to be made, and there will be less offshore money seeking a home here.

But it is a challenge that we should relish. After all, as the memorable quote says “if it was easy, everyone would do it”.

There is no doubt that market conditions will change. We anticipate that with rising interest rates and tougher borrowing hurdles imposed by all the banks, that some heat will go out of the owner/occupier market. As it should. We have been critical of some of the advice doled out by suburban accountants encouraging clients to buy their own premises. Obviously this has been a benefit to Expedio, but in many cases those owner/occupiers would have been better placed investing their funds in growing their business, rather than becoming a property owner.

And with fewer businesses seeking to become owner/occupiers, that means more needing to lease – so we just need to change our focus. We believe that flexibility will be the key for 2017. It’s not that what has worked in the past won’t work in the future. It’s more that subtle changes to the economic and political landscape, both domestically and internationally, could mean major changes in attitudes to investment. And that means we need to be prepared to be flexible and prepared to change our mindsets in response.


Basic Industrial Units in Papakura

Excellent progress is being made on refurbishment of two basic industrial units in central Papakura. They are 357 m2 and 365 m2, with one having a sizeable yard.
We expect to have them ready to display to potential tenants prior to Christmas.


Just purchased in Takanini

Just purchased – a block of 4 small ( 90 m2 ) units with good parking in a prominent position in Takanini. Available with vacant possession April 2017


Prominent Position Drury: Sold

A multi-tenanted industrial complex in a prominent position in the centre of Drury.


Airport Oaks: SOLD

1500 m2 warehouse and office leased on a long term lease to international tenant.


TIDY EARL RICHARDSON UNIT: SOLD

Industrial unit of 154 m2 warehouse and 26 m2 office with 3 dedicated car parks in a block of 6 units.


Is the market turning turtle?

Traders in every commodity and marketplace are constantly attempting to predict  the future direction of the market. Some, such as traders at Deutsche Bank, take predicting a little too far and actually manipulate the market. But, for most of us, we are simply trying to gather data, ascertain emotions, and predict direction and turning points.

And so, the question – Is our market about to turn turtle? Or are we experiencing the reverse of the “dead cat bounce”?

We have written previously about the evidence proving the “dead cat bounce” in various industries. Essentially, just like a bungy, or a dead cat on a rope, when the market appears to reach bottom, it bounces, often several times, before settling.

Could our current market be in the reverse of this?

Bouncing off it’s highs, or lows if you talk in yields, before settling somewhere around the current high points.

Alternatively , could it be that the market has actually turned off it’s high, and is about to change direction totally?

Or indeed could it be that we are misinterpreting a collective gasp for fresh air, in totally the wrong way. It could be that it won’t be long before we hit zero yields, and every tenant can buy their premises with free money. About the same time as the great bacon shortage, as all the pigs have flown away.
 
There is conflicting evidence. We now see massive amounts of international capital parked on negative yields. Which makes even 2 to 3 % property yields look attractive. We see commentary that the US dollar is heading towards losing it’s reserve currency status. Then we see the USD strengthening. We see commentary that as lowering central bank interest rates clearly isn’t working – perhaps raising them is the answer. We are told that 52 % of American workers are paid some type of benefit. And that the free money for students scheme (commonly called interest free student loans) is a $140 M a year burden on taxpayers.

All of which points to? Well, we don’t know! What it does tell us that there is a lot of money floating around trying to find a home where it can be useful. And that some of the people who make decisions regarding that money make some really dumb decisions as to what to do with it.
 
For some time we have felt that what is likely to change the direction of our market is an external shock. With immigration and tourism as major drivers, the New Zealand economy appears in good shape. But the downside of being so inter-connected globally is that external, and very remote, factors can blindside us. Internationally, over all classes of investments, there has been a chase for yield. This has resulted in increasingly riskier assets and speculative positions being adopted. Any rapid change to those speculative positions could have a very rapid flow-on impact, and ultimately on our market. We can’t predict where the next shock may come from. It could be US election uncertainty. It could be Italian banks unravelling. Or it could be central banks giving up on lowering interest rates as a tool to stimulus, and trying the opposite.
 
In our local market what we  mostly see is that investors, and particularly part-time investors, need time to adjust to changes in the marketplace. The negative feedback we most commonly receive at present is “I won’t pay that yield in that location”. Which is just an echo of the feedback from 3, 6 or 12 months ago. It is just that the yield number has changed. We all thought 4 and 5 per cent yields were crazy money 12 months ago. And now we are paying those numbers.
 
We also see that market discernment takes a holiday as prices rise. We have seen commentary that “there is a strong focus on quality assets”. Isn’t there always?  But what that statement disguises is the lack of disconnect between quality and second tier assets. Our experience is that the costs involved in management and upkeep of second tier industrial assets are diverging significantly from similar costs for prime assets. With increased focus by insurance companies on mitigating their risk, together with new Health and Safety legislation, and increasingly erratic council enforcement, repair and maintenance costs for secondary buildings are rising much faster than for prime. Not all of those costs can be passed on to tenants. Theoretically this disconnect should be reflected in values. But it isn’t.
 
So perhaps the market hasn’t turned turtle just yet. It’s just that the reality of the market has moved quicker than most investors are able to process. And a collective breath is being taken before the market charges on again.
But then, we still have that nagging reminder of the time back in ’87 when we were paying the bank 27% for our borrowings. And the Asian Financial Crisis of ’97. And the GFC not so long ago.
It is a wonder we are ever able to make a decision!