TelferYoung (Hawkes Bay) Limited
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Hawkes Bay Newsletter - December 2005
1 December 2005
Welcome to our final newsletter for 2005
2004 was a very strong year and 2005 started following a similar trend. A sense of normality has since returned and prices are now generally steady. However there may well be some clouds on the horizon so no doubt 2006 will be full of challenges.
Thank you to all for the support throughout the year and from the team at TelferYoung (Hawkes Bay) Limited we wish you a safe and enjoyable festive season with family and friends.
Staff
We welcome Ka-Yan Ho who joined the Hawkes Bay team as a Graduate Valuer after completing an urban valuation qualification from Massey University. Ka-Yan is currently assisting the Directors on commercial and residential valuation assignments and is working towards gaining registration.
Commercial Property
Strong demand continues for investment property in spite of economic forecasts indicating further increases to interest rates. In general terms strong interest exists for investments yielding 8.00% to 8.50%. After a period where interest rates have sat below the levels of property investment yields it could have been expected that the yields would show an increase paralleling the interest rate increases, however evidence of this is yet to emerge. In earlier times, the 1980's for example, investment yields of 12% were not uncommon during an interest rate regime in the vicinity of 18%. Provided investors continue to contribute realistic levels of equity it is considered that interest rate increases are unlikely to have a significant impact on the investment yield levels currently prevailing.
In particular there is strong interest in two suburban retail properties in Taradale which are currently being offered in the market. The outcome of these sales is awaited with interest.
At the same time a large bulk retail property of two tenancies in Thackeray Street Napier is also on the market and is receiving average to good levels of enquiry.
Retail occupancy has shown strong growth in recent times with Napier City having a vacancy rate of only 4.7% at the time of our July 2005 survey.
A new letting in lower Emerson Street in the former "Dressways" property to Australian retailer "Supre" confirms the strong rental levels which have emerged over the last two years in Napier City. In Hastings a national retailer seeking space is understood to be contemplating purchasing a business to secure the required accommodation.
In respect of office accommodation, strong take up has continued for good office accommodation with the predominance of vacant accommodation available being of second tier standard.
Industrial
The industrial market remains very active with recent sales in the Onekawa area including a property in Wakefield Street with land area of 1546 square metres including two separate workshop buildings, selling at auction for $411,333. One building was subject to a month to month tenancy with the other vacant, this sale showing a net yield of 9.48%.
Another property in Wakefield Street housing a new warehouse building and site of 1072 square metres sold in August for $545,000, indicating an 8.26% net yield on the market rent.
An older basic workshop building on a site of 698 square metres in Edmundson Street sold for $197,000 and at the other end of the scale, a substantial warehouse property fronting Taradale Road with a site of 6886 square metres sold for $2,260,000.
The demand from owner-occupiers for small to medium size industrial properties in Hastings and Napier is strong and two substantial new industrial buildings fronting Omahu Road have recently been completed, one of these for owner-occupier use. An older showroom/workshop structure also on Omahu Road sold in October for $670,000 (2004 Rating Valuation of $480,000). This property included a site of 2200 square metres.
Recent rental reviews on industrial premises that TelferYoung have been involved with in Napier and Hastings have shown strong rental increases, as much as 55% in a three year review period. Continuing strong demand for industrial space is seen as underpinning the level of rental increases.
Horticulture
The orchard sector in New Zealand is facing a tough challenge at present with the actual returns for some fruit varieties being at marginal levels and in some cases below the cost of production. This has placed pressure on some growers especially coupled with seasonal finance requirements for the 2006 growing season. In addition we have had increased shipping charges, rising fuel costs, a high dollar and pressure on interest rates, all of which have affected returns to growers.
The comments made in our last newsletter are still evident as we go forward to the 2006 season with large volume of trees having been removed (estimated at between 2 to 3 million cartons) and cash cropping or grazing the preferred land use option.
Values have held reasonably well but capital values have dropped compared to the same time last year. Twelve months ago, productive orchard values were around the $70,000 to $75,000 per hectare level with this, now having dropped to around $55,000 to $60,000 per hectare.
However there is still high demand for well presented lifestyle properties which continues to underpin horticultural property values. We have had a number of lifestyle properties sell around or over the million dollar mark, indicating there is still demand for rural properties.
A number of growers and exporters are tackling the challenges head on looking at alternative markets and putting pressure on Australia to lift their ban on the importing of New Zealand apples. We also envisage a rationalisation within the export area of the industry with some of the smaller exporters exiting the industry. Overall a difficult 2006 season for growers is envisaged with orchard values remaining steady at present levels.
Napier Residential
The residential property market in Hawkes Bay has been very buoyant over the last three years with strong demand across most price brackets and very short selling periods. However, the selling period for residential properties has now extended to an average of around 35 days, and with this has come a general levelling off in prices.
Some sectors had continued to show value growth through the second and third quarters of 2005, particularly in the lower/medium price bracket. The upper end of the market has struggled over recent months. Overall, we expect residential house prices to remain reasonably firm across most sectors of the market.
The new Rating Valuations for Napier were released in November. These are undertaken solely for local authority rating purposes under The Rating Valuations Act 1998 and are assessed three yearly.
The Capital Value of an individual property is almost always assessed without the benefit of a full inspection and hence relying on this information may not be in the best interests of the buyer, seller, financier or other interested party. The Rating Valuation disregards issues of tenure, such as Leasehold status, and provision of chattels on the property.
Hastings Residential
The Hastings residential property market remains active and is currently settling into a status quo situation where market activity would be considered average as opposed to heated. Values remain steady with the average time to sell at present being 35 days, which is five days longer than the time stated in our last newsletter.
There is strong demand for properties at the lower end of the value range, highlighted by a mortgagee auction in Copeland Road in late November. The three bedroom residential dwelling with a high level of deferred maintenance on a corner site with a realistic market value of $150,000 to $160,000 sold under the hammer at $200,000.
There is less activity from the investment market at present as rental returns have not kept pace with capital growth and other investment markets now showing higher returns. We envisage with higher interest rates and the likelihood of further increases, that the residential investment property market will continue to slow with activity to remain at a level we would expect in an average year.
Bay View Lifestyle
There are two exclusive rural lifestyle subdivisions in the Bay View area at the selling and development stage. Esk Hills is in Napier City and involves building platforms around 5000 square metres but with owners also having use of extensive common areas which is developed with walkways and regenerating bush.
Esk Ridge is in Hastings District and is a similar concept with similar sized building platforms but with the owners to have a share in a farm park.
Both subdivisions offer a number of sites with spectacular sea and coastline views, views back to Napier and the Esk Valley.
Prices have been strong with some 21 sales averaging approximately $480,000 to date, with a high of $600,000.
This area has generally been less favoured than Havelock North. However the recent sales indicate good buyer demand in the higher price bracket.
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.