Commercial property boom seen
Investment in New Zealand's commercial property markets is tipped to break records this year, with about half the value of it coming from overseas.
Justin Kean, head of research at property consultancy JLL, said 2014 was shaping up to be the sector's biggest year for capital flows.
"We're starting to see a significant growth in the amount of transactions undertaken, and these are transactions in the $5 million-plus space in the New Zealand market," he said.
Kean said New Zealand's commercial property market, which had a market capitalisation of about $40 billion, usually averaged about $1.5b in $5m-plus transactions a year.
However, last year the level of investment jumped to $2.1b and this year JLL is forecasting capital flows will hit $2.9b.
That would eclipse the market's previous record buying spree of $2.7 billion in 2006.
Kean expected about a quarter of the transactions this year would be made by foreign buyers, who had a clear preference for office buildings.
He said New Zealand had made it as a core Asian-Pacific investment destination as investors searched globally for yield.
"We're seeing capital come in from Canada, Switzerland, Germany, Singapore and indeed some Chinese investors who are all currently active in the New Zealand market," he said.
"No Australians, more or less, which is interesting.
"But the fact that the Canadians and Swiss will come down to New Zealand indicates there is a real genuine reach and indeed a search for yield."
David Rees, Kean's visiting Australian counterpart, said commercial property transactions in Australia were also at an all-time high.
"There's more investment because there is more confidence but importantly . . . we're seeing a significant portfolio shift by global investors, by sovereign wealth funds towards real estate."
Rees said that the rise of Australia's pension industry had seen local investors buy back a lot of properties from overseas investors who bought up big in the 1990s.
Now the cycle had turned again and offshore investors were moving back into Australia "big-time" and he expected 2014 to be a record-breaker for property transactions.
Singapore was the biggest investor in Australia, accounting for 31 per cent of all offshore capital, and 23 per cent was from the rest of Asia - although China was not yet a big player - followed by the US and Canada.
Kean said one major point of difference between New Zealand's commercial property market and Australia's was the dominance of commodity sectors.
Brisbane and Perth's commercial property markets corresponded closely with the performance of mining companies, which were large users of office space.
New Zealand's commodity story was dairy-related.
"And the largest company involved in the dairy industry in New Zealand, in fact a company which controls something like 90 per cent of the marginal export activity of dairy across the world, occupies about 20,000 square metres of office space across the country," he said.
''That company could quadruple in size and it still wouldn't have a significant impact on New Zealand office markets."