Elections 2020 done and dusted. It will be interesting to see how the new Government will be formed. Does Labour bring in the Greens or just govern by themselves? All will be revealed in the next few weeks.
The Dunedin commercial sales market has been performing very solidly this year with strong inquiry for all types of investment property. Buyers are still being a bit picky when making a decision to purchase, but there is some urgency amongst buyers when a quality well leased property becomes available. Not quite the same frenzy as is evident in the residential market, but multiple offers on commercial property are not uncommon. This appetite to purchase, combined with low deposit and borrowing rates has seen a decline in yields for certain types of property. At the beginning of the year, yields for commercial and industrial property varied from 6% to7% dependent on the type of property. Now the normal is 6% to 6.5% for the right type of investment, but don’t be surprised if you see yields drop below 6% for the right sort of property. As you will appreciate there are many variables, but I believe in this financial environment, while we have low interest rates, commercial property demand will rise and yields will fall.
There has been approx. 11 bona-fide sales since my last newsletter in April (Click on Link to View) I have not included the last of the sales to the Crown for the Hospital rebuild, as well a couple of sales that included the business interest. There is also strong interest from buyers looking for owner occupier premises for their business. This is evident in all 13 new industrial units in Cleveland Close, Fairfield, now sold by Cutlers. All units were sold to owner occupiers at yields of 6% to 7% on passing rents.
For those of you who are considering selling, now is a great time to cash in your asset to get the best possible realization. We have cashed up buyers waiting for the right property.
Leasing inquiry has been steady for Industrial. Retail and office accommodation, with a number of larger industrial properties being leased. Vacant Industrial property is at an all-time low, especially for smaller industrial units of 200m2 to 400m2. I believe this trend will continue as the Hospital rebuild gears up. Rents for industrial premises are still sneaking up, and for some of the smaller units $90 to $100 m2 is achievable for the well-presented units.
There are still vacancies in the George Street retail zone, but these vacancies remain at about 10% of the available stock, which is much the same as pre covid. Rents have stabilized in this area, which is based on a supply and demand basis, and while we have vacancies, prospective tenants feel they can negotiate with a landlord.
Prime office space is still at a premium with few vacancies. Rents again have remained stable for AAA grade suites at $290m2 to $320m2 gross including rates and insurance. The B and C grade space is harder to lease unless the rents are at a level that will attract a tenant.
Car parking with office space is still very important, especially in the Dunedin Central Zone. I believe we have a major problem in Dunedin with the lack of car parking in the central zone. It is all very well to promote the use of Public transport, but to convince the majority of our inner city workers to use the transport system will take years.