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Waikato Newsletter - July 2010

14 July 2010

Welcome to TelferYoung Waikato's July 2010 Newsletter

Variation 21 Update

Hamilton City Council's controversial Variation 21 has been quashed.  In principle it restricted office and retail development outside of the Central Business District.

Variation 21 attracted a large number of submissions in opposition to it being incorporated into the City Plan for varying reasons.  As a result of Tainui bringing a case to the High Court on the basis that the Council failed to consult Iwi, the variation was repealed.  Council has decided not to appeal the decision.  At this time there is a review of the District Plan underway and it is likely that elements of Variation 21 will be incorporated. 

Hamilton Office Market - June 2010

TelferYoung (Waikato) conducted its second annual survey in June 2010 of office buildings within Hamilton's Central Business District (CBD) and the outer fringes to monitor vacancy levels.

We calculated a total CBD and Hamilton East office stock of 228,363m² with a vacancy of 11.97% or 27,340m².  This is a marginal increase from 11.84% in June 2009.

We classified the City into four precincts and we are able to see in the graph below the dynamics of the vacancy levels as at June 2010 in comparison with one year ago. 

Of particular interest is the notable decrease in vacancy in the Outer Fringe, as a result of a number of smaller spaces being leased up, which have sat vacant for a reasonable length of time.  There is a sizable increase in vacancy in Hamilton East, as a result of three premises becoming either fully or part vacant. 

 We have also calculated the vacancy by grade within Hamilton.

• Grade A vacancy is 8.98% (this is once again solely due to the vacant Deloittes building first floor).  The overall area has increased with the completion of the new ING premise in the Outer Fringe.
• Grade B vacancy has risen by almost 3% as a result of a larger number of small spaces being vacated, rather than one or two big premises becoming empty.
• Grade C shows a slight decline in vacancy between 2009 and 2010, a difference of some 3,700m² in leased accommodation.
• Grade D has a significant decline of 13.1% in the vacancy rates, which equates to 2,248m² of accommodation being let.  This predominantly comprises larger dated premises, which have been vacant for a considerable period of time up until recently.

We expect to see a continuing higher level of vacancy amongst Grades C and D with continued difficulty in obtaining tenants for these premises.  Various factors inhibit these premises from achieving higher levels of occupancy, but in the main the core issues again return to the dated nature of buildings and fitout, and carparking availability.

The majority of the agreements which have filled vacancy would suggest landlords of the C and D grade office space have accepted lower levels of rental which is now allowing the backfilling of this accommodation. 

Hamilton Retail Market - June 2010

In June 2010 TelferYoung (Waikato) Limited conducted their biannual CBD retail vacancy survey.

The overall Hamilton CBD vacancy rate rose from 5.95% in January 2010 though to 8.46% in June 2010.  The vacancy rate is over double what it was in January 2009, some 18 months ago.  In actual area terms this equates to 8,629m² of vacant retail accommodation out of 113,344m² total.

The main retail precinct being Centreplace, Downtown Plaza and Ward Street/Worley Place has continued to be the worst affected by vacancy.  This rate is now at 13.65%. 

The second tier retail precinct shows an increase in vacancy with the closure of Abode Acquisitions, accounting for a large portion of the new vacancy.  In total seven stores have been vacated since January this year in this area.  Since January 2010, the Hospitality and fringe retail precinct vacancy increased by some 2% to 8.91%, but this is still lower than the vacancy rate of June 2009 of 10.47%. 

Residential

The Hamilton Residential Real Estate market experienced low activity throughout 2008 and into January 2009; however, increased activity from February 2009 resulted in a steadying of sales prices and in some cases a slight lift through to the end of 2009.  In 2010 we have seen a cautious market with low sales volume.

Coming out of the recession, many market commentators observed that property prices were still high, however positive net migration and historically low interest rates held up values during 2009.  Going into 2010 we have seen an increased number of listings on the market and uncertainty around new proposed property taxes and talk of increasing mortgage interest rates has had a dampening effect on sales volume.    After periods of low volumes there is often a build up of action required due to changes in family size, schooling requirements, or upgrading as a lifestyle choice.  This appeared to occur in mid to late 2009.  When confidence levels rise, and job retention and wage growth is optimistic then growth in the real estate sector is more likely.

• Statistics New Zealand is reporting that authorised new dwellings, excluding apartments, fell 8.3% in March 2010 and prior to this March figure had been increasing since March 2009, but is still at a low level.

• The Official Cash Rate (OCR) was reviewed 10 June 2010 and increased by 0.25% to 2.75%.  The Reserve Bank signalled another rise in the OCR later in 2010 if required.  Longer term, this rate is expected to increase with some predicting a 2% increase by the middle of next year.

• Immigration is a strong source of demand for residential property.  New Zealand had a net gain of 21,000 in the year to March 2010 (Statistics NZ - permanent and long term).  This was up from 7,500 in the year ended March 2009 and was due to 18,000 fewer departures.

• The unemployment rate for the March quarter was 6.0%, a substantial drop of 1.1% from the previous quarter.  This is a good sign for the economy and housing market, however debate still exists how much can be read into the significant change.

Rural Residential

The lifestyle property market has continued this year on the same basis as 2009, being a buyers market with sales volumes for the year to May being 43% down on 2007, although median price is down only 3% over the same period.  For vacant lifestyle blocks, following a period of over supply, a lower level of subdivision has seen supply and demand come back into balance.

Rural

Beef and lamb has been in good demand over the past month due to a shortage of supply overseas and returns are currently trending upwards.

Fonterra recently announced their end of season pay out at $6.10 following strong demand for dairy product and good auction results. 

To date the property market has not responded to the positive returns.  Banks remain subject to higher risk cover and increased borrowing costs resulting from uncertainty in Europe.  This is currently restricting finance availability.   This may change over the next two months with lower interest rates announced on 2 July.

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: waikato@telferyoung.com

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