TelferYoung (Waikato) Limited
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Waikato Newsletter - February 2008
29 February 2008
Welcome to our first Newsletter for 2008
In terms of the property market in Waikato Region, 2007 was an interesting period. After the continuing property boom of the preceding years it remained undaunted by repeated forecasts of cooling down. Whilst other centres may have eased, Hamilton and Waikato Region remained strong. 2008 looks to be an interesting year with mixed market activity to date.
Movember
Thanks for all the MoLove and support Waikato! The Waikato MoBros had a clean shave on the start of Movember and after a month long battle with their Mo's they were glad to be rid of them!
New Staff Member
Nice to meet you Jeff!!
We welcome Jeff Alexander as a graduate valuer in the Waikato office. Jeff started his career in property with high end residential sales in Auckland before moving onto commercial sales and leasing in Auckland's CBD. Before joining TelferYoung he worked for a large private Property Trust Board in a Property Management role. Jeff resides in Cambridge where he has lived since 2001, he is involved in all levels of the Hamilton residential market.
Market Commentary
Commercial and Industrial
Lack of quality investment stock has seen returns maintain their previous level of 6.5% - 7.5% for such property. Property of lower quality as to position, improvements and lease terms have seen higher yields with one property auctioned December 2007 showing a return on passing income of 11.22%. Those properties of smaller investment size appear attractive to the market with a majority selling for yields of under 7.25%.
Sales of interest since our last newsletter include the WEL building achieving a sale price of $10,700,000 which indicates a return of approximately 9.45% on the passing cashflow.
The property will require significant capital expenditure in the short term and after allowance is made for this our analysis reflects a return around 8.25%.
The market for property sold with vacant possession remains relatively strong; however analysis is indicating that there is a slight softening for this type of property. The Language Institute Building on the corner of London and Tristram Streets, providing in excess of 2900m2 of office accommodation, sold for $4,100,000 in June and was subsequently leased to the Waikato District Health Board. Analysis reflects a yield of approximately 9.5%.
Industrial land values are under continued pressure particularly in Te Rapa and Pukete due to a lack of supply. The Frankton area has also seen strong growth over the last twelve months. Subsequently sites outside of the traditional industrial areas have attracted more interest.
Rental levels are increasing for industrial property particularly for good quality well located premise. In our opinion this is to some extent the effect of required rental levels for new buildings to a developer in order to achieve a reasonable return on investment. The higher levels have tended to impact on rental for existing premise.
Office and retail premise subject to rental review are still seeing moderate increases in most instances due in main to the time lapsed since the last review. Recent leasing activity has shown that increase in office rents over the last six to twelve months has been varied.
Within the Provincial Towns of the Waikato Region there remains good demand for investment property. In Morrinsville a new development, subject to a four year lease sold for $2,350,000 indicating a return of 5.95% six months ago.
The limited sales activity this year would suggest a similar level of value for prime investment property and owner occupied property but we suspect, in the absence of sales activity, an easing of value for property of a second tier nature.
Residential
The Hamilton residential Real Estate market is gradually easing in most sectors. The median sales price for houses and vacant lands are still above the previous years however, the volume of sales has slowed down since the mid 2007.
The number of house sales is tracking well below the last three years. As there is a slowing population growth in Hamilton and with the mortgage rates approaching ten percent there has been a more significant pull back in demand.
The demand for high density land and infill sites for development has declined. The rising building cost and interest rates appear to be affecting the trend. There has been a steady increase in rental levels for several years in Hamilton but with landlords' cost structure increasing, due to the higher interest rates and lower anticipated capital gains as reflected by a slower activity in this sector.
The number of properties available for sale has increased and it appears that the property market has a good supply and more choice for purchasers. Fully completed properties of a high standard are still well sought after.
The Waikato drought of 2008 will see dairy production substantially lower than expected. The cash boom predicted is now unlikely for another season.
Rural Residential
2007 has been a year of rising bank interest rates and declining migration numbers. The resulting effect however has been comparable monthly sale numbers to 2006 and property values continue to increase. There is presently a good supply of vacant rural allotments and demand appears to have softened as a result of increasing costs to build a new house.
As a result of recent market caution, we anticipate that Waikato rural residential sales volumes are likely to be down on recent years and longer marketing periods may be required.
Dairy Farm Values
In May 2007 Fonterra increased last season's milk payment to $4.46/kg MS and announced a predicted end of season payment of $5.30, which has now lifted to $6.90/kg MS. This results from some record export prices, continued cost efficiencies and good production conditions.
Although not shown on the above graph, the exceptional returns are currently having a very positive effect on demand, placing considerable pressure on dairy farm values.
Top farms are now selling for around $70/kg MS as illustrated by Bayleys sale at Sommerville Road, Okoroire, where 123.73ha sold for $8.4million. The property was producing 120,000kgs MS.
The permanent drought conditions, however is likely to restrict sales as prospective purchasers comprehend reduced profits.
Drystock Farms
Pre Christmas 2007 lamb prices and predictions of a lower New Zealand dollar value provided some rejuvenation to this market. This however proved short term as both the price of lamb and wool is currently trending downwards.
Fattening/finishing farms within the central Waikato have been more keenly sought and prices have continued to trend upwards. This has been influenced by the dairy industry, however as with dairy farms the drought conditions are likely to affect demand.
Overall the market appears good and there has been good demand for property central to dairying localities, however the typical sheep and beef farms are currently experiencing difficult financial times and these properties are slow to sell. At present there is no evidence that returns for meat and wool will improve in the short term, therefore we anticipate demand and hence property values will be restricted.
TelferYoung (Waikato) Ltd thank you for all your support during 2007. We look forward to continuing our association in 2008.
Back issues of the newsletter can be obtained from TelferYoung (Waikato) Ltd
ph 07 839 2030
Fax 07 839 2029
489 Anglesea Street,
Hamilton
www.telferyoung.com
email: telferyoung@waikato.telferyoung.com
+ Doug Saunders + Roger Gordon + Andrew Don + Bill Bailey + Rob Smithers + Liz Allen + Cameron Roache + Jeff Alexander + Richard Graham + Yoon-Jin Cha + Russel Flynn
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.