TelferYoung (Wellington) Limited

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Wellington Newsletter - December 2009

21 December 2009

Welcome to TelferYoung (Wellington) Ltd's December 09 newsletter.

The Directors and Staff at TelferYoung (Wellington) Ltd wish you a happy holiday season and a very prosperous New Year.   Thank you for your support in the past year and we look forward to continuing our association.

The office will be closing for the Christmas break on December 23 and reopening on January 5, 2010.

Commercial/Industrial Market

Demand for almost all classes of commercial and industrial property throughout the Wellington region during the middle years of this decade was very strong.  Rentals grew rapidly particularly for well specified, functional and neatly maintained premises with direct access to transport and distribution terminals, and main commercial precincts.  Concurrently market demand for good quality, securely leased property in good locations was particularly strong with levels at times falling below 7%, and in some instances 6% or thereabouts on the back of very strong demand and competition.

However, market sentiment changed rapidly in the first half of 2008 with diminishing finance supplies and borrowing costs, coupled with an emerging recessionary economy reducing the number of prospective purchasers.  As a consequence, a risk premium has been factored into pricing structure by the market to reflect the individual specification, location and tenant strength of properties in certainty of cash flow.

During the third quarter of 2009 there is a little more activity than apparent during the early to middle months of the year but nevertheless yields and therefore realization prices have now settled at higher bench mark levels than were apparent three to four years ago and demand is still relatively weak for anything but the best specified and most securely tenanted properties.  Vacancies appear to have increased in peripheral sectors and rental growth has all but diminished with little prospect of any significant increase in the immediate term, and in some locations a possibility of a diminution on re-leasing and rental reviews based directly on market evidence.

We summarise the most recent significant commercial sales this year as follows:

Industrial yields are ranging from 7.5% to 8.5% for securely leased investment entities to more than 10% for properties with deferred maintenance, weak tenant profiles and secondary locations.

Residential

The Wellington City property market experienced a distinct decline in terms of value levels during 2008 and early 2009 due largely to the world financial crisis, although recent economic recovery and a lack of good stock available has created some ‘spikes' in the market.   The latest statistics have shown that property values in the Wellington region are again positive, with overall values increasing.   Within Wellington City itself, transactions continue to be achieved particularly amongst vendors and purchasers prepared one another's reasonable aspirations, with multiple offers again common place.   Property investors are also returning to the market due to improved yields, largely as a result of reduced interest rates, relaxing of banks' lending policies, increasing market rentals and improved economic confidence.  

However there have been signs in recent weeks that more properties are coming onto the market although still well down on the highs of 2007.   Whilst some commentators expect prices to keep escalating because of strong migration and a shortage of new construction, it is our view that house prices will not continue to escalate at present levels in 2010 due to likely increases in mortgage rates and listings, along with static wage growth and deteriorating job security particularly within the Wellington region.

The market for development land remains ‘soft' due to part to the difficulty in securing funds and increases in building and compliance costs, not offset by increasing market values but we do envisage an improvement in demand as the market continues to stabilise.   Developers however are now adopting a more traditional approach to land where location has become premium.  Properties with negative attributes such as difficult contour, access, and planning restrictions will meet with increased buyer resistance.

Hutt Valley Residential - 2009 has been a mixed year in terms of the residential marketplace.   Fringe suburbs that are more affordable experienced value reductions of perhaps up to 20% from the market high of around September 2007, and even more for those properties that required immediate capital input, reflecting a margin for work required. 

Other parts of Hutt Valley also experienced value reductions but to a lesser extent, and has recovered well from the market low of around October 2008.  Presently there is strong demand for family accommodation around the $500,000 level, yet the top tier of $850,000 plus is sluggish.

Part of the reason for value recovery is demand exceeding supply.  Property owners are content to stay where they are due to the current economic conditions.  The number of properties available for sale has therefore not satisfied buyer demand in general, resulting in increased value levels since the lows of 2008. 

It has been our observation that buyers expect significantly better quality properties for their dollar as they move further out of the city.

QBase System

TelferYoung (Wellington) and the TelferYoung Group are accredited for the QBase Quality Management System.  This is a system developed specifically for small and medium sized businesses.  It is based on the ISO 9001 Quality System Standards.  It enables businesses to implement basic management disciplines to assure quality of products and services.

The QBase Code focuses on eight areas of operation, these being critical aspects of operating an effective management system.

On a six-monthly basis, professionally trained and qualified assessors from Telarc SAI review our systems, and we must comply with their requirements in order to maintain accreditation.  Our aim is for our organisation to gain immediate recognition as a committed supplier of quality products and services, and that our business has been independently and professionally assessed, and is reliably practicing good management.

Adopting the QBase system, and obtaining accreditation enables TelferYoung group to provide quality valuation documents, benefiting both our existing and growing client base.

Back issues of the newsletter can be obtained from TelferYoung (Wellington) Ltd
Level 9,
85 The Terrace,
PO Box 2871,
Wellington.
Ph: 04 472 3683,
Fax: 04 478 1635
www.telferyoung.com
email: telferyoung@wellington.telferyoung.com

+ Adrian Brady + Chris Barnsley + Martin Veale + Jerome McKeefry + Lindsay McAlister + Graeme Kirkcaldie + Stephen Batt + Jason Lochead