Covid-19’s hit to commercial property sales

New Zealand was on track for a stand-out year of commercial and industrial property sales until the impact of Covid-19, new research has found.

Colliers International looked at national commercial and industrial property sales over the 12 months to June 2020 and found there were 3,258 transactions with a total value of $7.5 billion, well down on previous years. The industrial sector comprised 43 per cent of the total value and 51 per cent of the total number of sales.

Ian Little, associate director of research at Colliers, says the results show what a difference six months can make.

“Unsurprisingly, given the huge disruption caused by Covid-19, trends are significantly different when the second half of 2019 is compared with the start of 2020.

“Sales concluded in the second half of 2019 generated just under 75 per cent of the total number of properties transacted and approximately 72 per cent of the total sales value over the 12 months to June 2020.

“Over the first half of 2020, there were 814 transactions with a total value of $2.07 billion – well down on the previous six-monthly results.

“While a ‘wait-and-see’ approach was undertaken by many investors during the disruption from Covid-19, the lag in data reporting for the opening half of 2020 will have also played its part.

“As we progress through the year, we expect the total number of sales and total value to edge up, but there is no doubt that the totals will remain below recent annual results.”

Little says New Zealand was on track for another solid year before Covid-19, when sales trends were very much in line with previous stellar years.

“The value of sales at $5.4 billion was running approximately 3.5 per cent ahead of 2018 albeit that the sales count was down by 260.

“When analysing year to June results, traditionally, sales activity in the latter half of the year exceeds the first half of the year with the average difference over the last six years being around 25 per cent.

“Had this played out and there was no disruption from Covid-19, sales values for the 12 months to June 2020 could have reached $9.5 billion, just ahead of the 12 months to June 2019 figure of $9.37 billion.”

Adrian Goh, research analyst at Colliers, says the industrial sector continues to attract the largest share of commercial property investment activity.

“Over the 12 months to June 2020 period, 1,675 industrial properties changed hands at a combined value of $3.23 billion.

“The outlook for the sector remains positive with its low risk reputation being enhanced by solid fundamentals.”

Goh says the retail sector before Covid-19 shrugged off much of the sector’s associated concerns with 650 sales over the second half of 2019 generating a total sales value of $1.1 billion.

“This was 17.8 per cent ahead of the corresponding period in 2018 and $39 million ahead of the second half of 2017.

“The short-term outlook is less positive given current circumstances. Investors who are less averse to risk may well, however, be presented with well-priced opportunities in the short-term future.

“We also note that large format retail property and some other retail subsectors are an exception and continue to attract significant interest.”

Goh says the office sector in the closing half of 2019 generated 281 sales, which was two more than had been the case in the second half of 2018.

The total value of sales was $1.1 billion in the second half of 2019, matching the retail sector.

“There were a limited number of office sales in the first half of 2020, however the total value was $485 million. This figure, in part, reflects a lower number of prime office assets being brought to market.”