Hamilton’s commercial property sector has experienced an extremely active 12 months. There have been ownership changes amongst all of the city’s major shopping malls. Low vacancy rates across the city’s industrial precincts has driven a raft of new development while the office sector has seen new development and refurbishment projects attracting tenants from the CBD’s older buildings.
Hamilton’s economy is benefiting from a surge in construction activity both residential and non-residential with building consents (by $ value) up 57% and 67% respectively over the past 12 months to March 2016.
A sharp increase in residential buyer demand has seen house prices rise by more than 30% to $472,000 over the same period, triggering further new sub-division releases and rising levels of residential construction activity. The ensuing strong population and consumption growth will provide a solid boost to retail and industrial markets especially in the fast growing North East and North West areas such as Rototuna and Rotokauri.
Despite the current challenges facing the CBD regarding tenant retention and existing high vacancies, there continue to be opportunities for nimble developers especially those with smaller to medium sized refurbishment projects. A number of successful projects have been completed, tenanted and on-sold with the added benefit of providing a fresh face to CBD streetscapes.
Longer term, a growing population base, greater connectivity with Auckland (via improvements to the Waikato Expressway) and development of the inland freight port at Ruakura will act as key economic drivers for Hamilton.
Challenging times continue for the Hamilton CBD office market. Recent media reports suggesting the IRD will move around 500 staff from the CBD to Te Rapa into, as yet, unidentified premises would be a major blow to the CBD. With a dearth of large occupiers looking for space this will push already elevated office vacancies higher and set back plans for the revitalisation of the CBD.
Yet despite these challenges there are still niche plays in the market. Demand from smaller occupiers for high quality refurbished office space remains solid. A number of local developers are active in this area acquiring older secondary premises and refurbishing to either an A or B grade standard.
Stark Property is currently involved in a number of projects the largest being the redevelopment of the old Med Lab building on the corner of Angelsea and Knox Streets which is undergoing an architecturally designed conversion to high grade office accommodation. Completion is expected later this year. Another recent Stark purchase was the historic Beggs Wiseman building on the corner of Victoria and Ward Streets from the city council for $1.05m with plans for a complete refurbishment. Media reports are also suggesting the Waikato District Health Board (DHB) may be considering occupying the old Farmers building on the corner of Alexandra and Collingwood Streets. With around 500 staff this would go some way to off-set a potential IRD exit from the CBD.
A few new builds are also occurring, largely on a precommitted basis. Wallace Developments completed 690 Victoria Street for FMG Insurance just before Christmas with the property subsequently on-sold to the Len Reynolds Trust for $4.1m. Foster Construction recently commenced work on the Genesis Energy redevelopment of the former Countdown building on the corner of Tristam and Bryce Streets with completion due mid-2017. Around 600 Genesis Energy staff currently housed in two existing CBD locations (500 Victoria St and 65 Bryce St) will move into the redeveloped building. Fosters Construction is underway with a new development for the Corrections Department in London Street. When complete, in December of this year, the Department will move approximately 180 staff to the new building which will replace six existing facilities.
Investment conditions continued to remain very tight. Strong investor demand and a chronic shortage of stock are placing further downward pressure on yields. Local investors are having to battle increasingly with out of region purchasers, particularly Aucklanders, for the limited stock available.
There is a growing disconnect between rents on existing office space which have recorded little if any growth based on current high vacancy levels and those for new builds which need to factor in the sharp increase in land and construction costs.
The past 12 months has seen an unprecedented change in ownership across all of Hamilton’s major shopping centres. In late 2015 Scentre Group sold Westfield Chartwell, along with Westfield Queensgate in Wellington, to the Stride Diversified NZ Property Fund Limited for $445m subject to OIO approval. Equally Kiwi Property Group rebalanced its retail exposure to Hamilton by selling Centre Place South, the newly refurbished portion of its CBD shopping centre to an unnamed NZ buyer for $46.7m in December 2015. In April 2016 Kiwi Property announced it had acquired a 50% stake in The Base Shopping Centre in Te Awa from Tainui Group Holdings (TGH) for $192.5m. The terms of the deal include a 120 year prepaid ground rent by Tainui who will ultimately retain freehold title. Kiwi Property’s more recent approach to TGH to purchase the remaining 50% of The Base has not been accepted and as a result the investment will proceed by way of a 50:50 joint venture with Waikato-Tainui.
CBD retail conditions continue to remain challenging and will be further exacerbated should the IRD move staff out of the central city. CBD strip retail, in particular, continues to come under pressure with high levels of vacancies and softer pedestrian traffic. By comparison, the CBD’s major mall, Centre Place, looks to have consolidated its position as the primary retail destination in the central city.
Retail development activity has surged across Hamilton over the past 12 months with building consents (by value) up around 200%. One of the largest projects currently underway is the new $24.7m Bunnings Warehouse on the corner of Kahikatea Drive (SH2) and Quentin Drive, between Frankton and Melville which is expected to open late this year. On completion the new store will have a total area of 11,340m2 and parking for around 270 cars. It will also include a number of energy and water saving designs including LED lighting and rainwater harvesting tanks which will be used to irrigate the nursery and service the Warehouses amenities.
A new Mitre10 is also under development on the corner of Wairere Drive and Ruakura Rd Hamilton East totalling around 9,000m2 with around 260 carspaces and completion expected in the second half of 2016.
The latest Bayleys Research industrial vacancy survey for Hamilton shows that conditions remain tight across all the major traditional industrial areas. As at March 2016 the overall vacancy rate was a low 5.4%, up just marginally from the previous year’s 5.1%.
Te Rapa recorded the highest increase in vacancies moving from 5.7% in March 2015 to 6.9% currently due to a few vacancies appearing on Sunshine Avenue and Te Rapa Road. The continued low vacancy in Te Rapa North reflects the fact that a majority of development is modern and has been developed on a design build basis.
BP have recently purchased the former Geo Palmer Motors site on land adjoining their current premises on the corner of Victoria and Ulster Streets for $2,855,000 with plans to expand their existing footprint in the area. An increasing number of car yards around Hamilton appear to be changing hands reflecting a shift to higher and better usage of profile sites.
With all major land use consents now gained, earthworks for the major inland port at Ruakura are likely to commence within 12 months. The port will support the requirements of a range of freight users who are expected to locate within the adjacent logistics hub. Major investment going into road and rail connections will see Ruakura act as an enabler of freight flows, which are expected to double over the next 20 years.
The investment market remains very tight and when industrial properties are presented for sale competition is fierce with owner occupiers largely dominating activity. The tight market conditions are, in fact, prompting some rural land owners close to popular industrial areas such as Te Rapa/Gateway to consider offering unserviced bare land to the market. Cap rates remain tight under current market conditions.