Safe havens: NZ

LOW interest rates and favourable returns relative to other asset classes, combined with stabilised and improving occupancy, resulted in a strong investment market for properties that met buyers' requirements of strong tenancy covenants and long lease terms.

Office property was the best-performing asset class this year. This reflected improved demand and a lack of supply following a sustained supply cycle. Also, the office sector suffered the most deterioration during the recession, so its current good performance represents a strong bounce back to previous performance benchmarks.

In 2013, New Zealand's economic growth will be supported by Canterbury, rebuilt following earthquakes in 2010 and 2011. This is further supported by a strong anticipated increase in housing construction activity in Auckland. For commercial and industrial property, this economic growth implies steady improvement from current levels with values likely to be driven increasingly by rental growth as the year unfolds. Further deepening of the investment market will be underpinned by continued low interest rates, attractive returns and increasing levels of offshore interest in New Zealand assets.

Prime real estate is very popular within the New Zealand market. One of the real opportunities going forward will be the repositioning of secondary stock that is currently discounted. If people buying secondary stock have good ideas and access to capital, they will have real opportunities to make money.

The biggest issues and challenges facing the market today - the seismic strength of buildings - will be dominating conversations across the country for awhile. Many of the owners of substandard buildings do not have sufficient capital available to strengthen these assets. I consider that the free market will deal with it, creating opportunities for joint-venture partnerships where introduced capital is rewarded by part-ownership of the upgraded property. As well as equity participation, there is likely to be an increase in debt funding products for seismic strengthening purposes.

This story first appeared in The Edge weekly edition of Dec 24-31, 2012.

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