TelferYoung (Nelson) Limited

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Nelson Newsletter - December 2009

23 December 2009

Welcome to our last edition of the TelferYoung Nelson newsletter for 2009. In this newsletter we review commercial market activity.

Retail Market

The 2009 year has seen a substantial uplift in retail leasing activity as a direct result of increased availability of retail space.  A number of businesses have ceased to trade leaving opportunities for existing businesses to relocate to new premises and new businesses to enter the Nelson market.

In the face of tightening economic conditions, the uptake of vacant premises or demand has been surprisingly strong. All though there has been downward pressure on rentals the prediction of wholesale rental reductions of 20% across the Nelson retail market by some commentators, have not come to fruition.    

We have analysed 14 new lettings throughout the retail centre in the Bridge, Hardy and Trafalgar Street retail precincts.  Our analysis shows the following trends.

New Lettings - relative to rental levels established in 2007 and 2008

The evidence indicates a market of mixed trends. Overall there is evident downward pressure on rentals in the peripheral retail areas particularly noted in the Bridge Street east area with evidence of falls of up to -23% to -26%.

Other peripheral areas indicate they have held established rental levels as a result of changing dynamics affecting those markets such as the Hardy Street east area with the establishment of Fashion Island and other traffic generators. 

Trafalgar Street shows mixed trends with some evidence confirming established rental levels. Current evidence in the central north eastern quadrant - previously known as "The Golden Mile", north from Farmers - shows a significant downward change of -13% to -17%.  This evidence indicates an adjustment of this sector aligning with a pattern of changes evident in pedestrian flows and the flow on effect evident in rentals in the Bridge Street east precinct.

In two of the most recent new lettings, the fall in the initial contract rent has been partially offset by annual percentage increments on reviews.

The Richmond retail market remains relatively firm with new letting evidence mixed but generally confirming established levels or slight increases. The Richmond Mall continues to stabilise and influence the Richmond market.

Office Market

The office market could be best described as inactive with only a handful of new lettings    during 2009.  A significant volume of second tier office space remains available for lease with agents reporting limited enquiry.

Industrial Market

The market for industrial land has eased substantially over the last year with limited demand for available vacant land.  A limited number of sales have been recorded indicating a fall in land values of approximately -2.5% to -7.5% over levels established in early 2008.  Premium prices paid for land, considered to have speculative development potential for alternative uses, have not been sustained.

Commercial Sales

The commercial sales market has been affected by an absence of good quality investment property being offered for sale.  Existing owners are reluctant to sell because of limited alternative investments that show comparative returns to the property risk profile.  Significant commercial investment property sales recorded during 2009 in the central Nelson area include -

	120 Hardy Street - Sold April 09 for $1,075,000 - Sale of single tenant investment property of mixed retail, office and storage development with onsite carparking.  Cap rate on contract rental 7.9%.
	127 Trafalgar Street - Sold May 09 for $8,950,000 - Nelson City Centre development comprising large format Farmers store with specialty shops in pedestrian arcade and first floor offices/retail. Cap rate on passing rent of 8.1% after adjustments for rental increase on main tenancy in 2010.
	259 Hardy Street - Sold July 09 for $405,000 - Older style, two tenant retail premises with first floor flat over on small commercial site of 171 m2.  Passing cap rate on estimated rentals 9.2%.  Previously sold 05/07 at $490,000.
	43 Halifax Street - Sold September 09 for $803,500 - Two storey 1970's office block of 500 m2 with 60 m2 basement on 637 m2 site. Part ground floor vacant at sale. Cap rate on passing rents plus potential rent for vacant portion equates to 8.6%.
	47 Collingwood Street - Sold December 09 for $4,800,000 - New ACC development. Sale yet to be confirmed.  Approximately 11 yrs remaining on initial lease term.  Rent reviewed by CPI plus 1% pa at 3 yearly intervals.  Cap rate on contract rent at sale some 7.2%.

Valuer Profile - Ian McKeage

Ian has over 25 years experience in the Nelson market. He specialises in commercial and industrial property valuations, consultancy and special projects.  Ian principally works in the commercial centres of Nelson and Richmond and the Port, Stoke, Tahunanui and Richmond industrial areas. 

Ian and his family were recently holidaying in Samoa at the time of the earthquake and tsunami.  Fortunately they were on the safe northern side of the Island.  The family were able to spend time as Red Cross volunteers before returning home to Nelson.  This experience reinforced our company's decision to make donations to charity this Christmas, instead of corporate gifting. 2009 recipients are the Nelson Region Hospice Trust and the Red Cross Samoan Tsunami Relief Appeal.

Season's Greetings

We close this newsletter by wishing all our customers, business associates and their families a safe and relaxing Christmas and a busy and successful new year. 

Our offices will close on Wednesday 23^rd December and reopen on Wednesday 13^th January 2010. 

Back issues of the newsletter can be obtained from TelferYoung (Nelson) Ltd
Phone (03) 546-9600
Fax (03) 546-9186
www.telferyoung.com
email: telferyoung@nelson.telferyoung.com