TelferYoung (Hawkes Bay) Limited
Current | 2008 | 2007 | 2006 | 2005
Hawkes Bay Newsletter - August 2005
1 October 2005
Welcome to our Spring newsletter.
Introduction
The property market generally appears to have remained stable in spite of predictions of gloom by many commentators. Our forecast for the next few months is for a stabilising period but with questions looming in regard to the pending election, interest rates, and the depressed apple industry. No doubt this will see some sectors of the market out perform others and careful planning will be essential.
Staff
We welcome Ellie Yeates to the TelferYoung team as the new Valuers Assistant, replacing Stephanie Burgess who left to do her OE!
Ellie has picked up the new role quickly and will be looking to make contact with various clients and colleagues to add to our database in the near future.
Commercial Property
The office sector of Hawkes Bay commercial property has seen a strong period of occupancy take up since mid 2003 where the amount of vacant office accommodation has been reduced by more than half to only 4.9%.
Surveys for the last three years have recorded the vacancies as follows:-
| July | 2003 | 16.2% |
| June | 2004 | 10.5% |
| June | 2005 | 4.9% |
As a consequence the balance of supply and demand is such that rent growth has returned to the market after a long period where 'lessee's market' conditions prevailed.
Leasing agents report quite strong leasing conditions with the demand being particularly for premises of good quality.
Contributing to the reduction is the amount of space which has been withdrawn from the market for conversion to apartments with the McLean Towers Building being a good example. The reduction of space is estimated to be 4100 square metres.
Subsequent to completion of our survey it has been reported that contracts are in place for accommodation within 'Vero House' where vacancies have prevailed for some considerable time and accordingly there is likely to be further reduction in the vacancy rate at the time of our next survey, should current conditions prevail.
The position bodes well for the letting up of the new building proposed by Herbert Construction on Cnr Munroe and Raffles Streets, Napier where it is understood that a take up of approximately half of the space has been achieved so far.
As a consequence of the supply/demand ratio, sitting tenants are facing rent review increases after a long period of rental stability.
Industrial
Demand for industrial space especially sites with good profile continues to be strong. The general increase in activity in the last two to three years has underpinned a strengthening of industrial rental levels. Large increases in rentals for warehouse and workshop space have been experienced in a number of cases. Two typical increases in rental over the last two years recently settled showing 12% and 17% lifts.
The demand for bare land remains keen with a site of 1064 square metres in Wakefield Street selling at auction for $157,000 or $147.00 per square metre. The number of genuine bidders for this site and the final sale price surprised many. We understand there are sales pending on three sites of 2400 square metres in Omahu Road, Hastings at $312,000 each or $130.00 per square metre.
Improved industrial property is also well sought after, with one recent sale of note being a property fronting Taradale Road selling at $585,000. This property involved a corner site of 1004 square metres and has some commercial component. The sale gave a net yield on existing rent of 8%.
A substantial industrial property in Edmundson Street, Onekawa recently sold for $1,050,000 which shows a 9.44% net yield on existing rental. It involves a site of 3034 square metres, part of which was leasehold, with a five year unexpired lease term.
Horticulture
At present capital values of orchard properties on the Heretaunga Plains remain relatively steady. There have been a number of reasons for this firstly a drive to achieve economies of scale for individual growers and secondly the purchase of orchards for lifestyle influences with the rural portion of the property subsequently leased. This is consistent with the comment in our last newsletter.
However we would now comment that the horticultural industry is facing a tough challenge with returns for fruit being at marginal levels. We understand that the marketing of fruit in Europe has been very difficult with increased production from South America and South Africa and a decline in consumer consumption of pipfruit. We are aware of a number of orchard properties where trees are being removed at present with property owners looking at all their options including cash cropping and grazing. We would envisage orchardists putting development programmes on hold to see what happens with final payouts and forecast for the 2006 season.
Napier Residential
The residential property sector in Napier continued to show growth across most price brackets during the one year period to June 2005, although the second quarter of 2005 has shown more modest price growth throughout most price brackets. The lower end price bracket has shown the highest level of growth up to June 2005. The market is now showing signs of levelling out with prices remaining steady, and time pressure on buyers has reduced significantly. The period of time it takes to sell a property has increased over the last three months, with this being particularly prevalent in the higher price sector of the market. Napier has been a sellers market for the last three years, however we are now seeing a more balanced situation.
There has been an increased demand for residential properties with redevelopment potential, especially suburban infill subdivision in almost all Napier suburbs. Historically, the more common areas for infill development were in the three main areas of Napier South, Greenmeadows West and Taradale where large sites are predominant and land values are higher. However with section prices in new subdivisions being at relatively high levels, any subdivided suburban infill sites are proving popular to both owner-occupiers and townhouse developers.
Using data since 1978, TelferYoung (Hawkes Bay) has been providing its own residential property statistics of the value of a sample average house in Napier City. In the 12 months to June 2005, the "average" house in the mid price bracket has increased 13%. Since our sampling began, it has increased an amazing 800%.
Hastings Residential
The Hastings Residential property market continues to show growth in capital values. Our analysis indicates that the current rate of appreciation in capital values over the past six months has been in the order of 15%. We understand that the market is steadying with the time for selling a property lengthening out to around 30 days as opposed to 13 days at the same time last year. We envisage the residential property market to continue to be steady with the rate of capital appreciation easing but current market values to remain firm.
Affordability has declined further with very few first home buyers purchasing properties at present and existing home owners deciding to remain in their current home. In addition a number of people have opted for fix term interest rates as opposed to the higher floating interest rates.
Residential Leasehold
TelferYoung (Hawkes Bay) Limited act as Consultant Valuers to both the Hawkes Bay Regional Council and Napier City Council, two of the larger lessors of land in Napier. The Hawkes Bay Regional Council own approximately 800 mainly residential sites and the Napier City Council approximately a further 100 residential sites and a similar number of industrial sites.
The majority of leases have similar terms and conditions. Most have 21 year terms and are perpetually renewable. But there are some differences in the wording relating to rent reviews. A large number of leases have the rent set at a prescribed 5% of the land value. Later leases allow for fair market rents to apply. TelferYoung currently believe fair market rents for these leases would be at approximately 6% of land value. The Hawkes Bay Regional Council have signalled their intention to charge market rents where available from 2012 ie. 6% compared to 5%. Therefore otherwise identical residential sites with the same review dates could have significantly different rental levels applying.
Purchasers should consider the following points when contemplating buying a leasehold property.
- What will the rent likely go to on review?
- Can I afford the reviewed rent or is it sufficiently far away not to be an issue?
- Is the discount in price relative to a freehold property large enough to offset the extra cost of meeting the lease obligations?
- What will the likely freeholding cost be if I choose to freehold?
Both organisations allow freeholding of residential leasehold sites.
The Hawkes Bay Endowment Land Empowering Act 2002 gives rights to lessees and lessors in respect to freeholding residential sites.
However with the strong growths in land values in Napier over recent years, the cost to freehold has also risen, in line with other property values.
Therefore while we firmly believe that there is a place for leasehold property, we strongly recommend obtaining good advice before purchase to help avoid nasty surprises in the future.
Back issues of the newsletter can be obtained from TelferYoung (Hawkes Bay) Ltd
email: telferyoung@hawkesbay.telferyoung.com
+ Max Plested + Mike Penrose + Trevor Kitchin + Derek Devane + Andrew White + Andrew Chambers + Hugh Peterson + Kayan Ho + Mark Apperley
Opinions expressed in this newsletter are of a general nature and should be used as a guide only. TelferYoung should be consulted before acting on this information.