Some residential property investors appear to be cashing up to put their money into commercial property, particularly in Auckland

Some residential property investors appear to be cashing up to put their money into commercial property, particularly in Auckland
This two level building with a sushi restaurant downstairs and apartment above in the heart of Takapuna sold for $1.195m.

Sales may be slowing at most residential property auctions but there was an air of buoyancy at Bayleys' latest commercial property auction held at the company's Viaduct Harbour auction rooms in Auckland on May 15.

There were 14 properties on the Order of Sale, most of them small to medium sized properties that would likely appeal to private investors and a good sized crowd turned up for the event.

One of the properties had been sold prior to the auction and two others were withdrawn from sale, leaving 11 to go under the hammer.

There was competitive bidding on most of the offerings and by the end of the auction seven had sold under the hammer and four were passed in.

So of the 14 properties that were on the Order of Sale, sales were achieved on eight, giving an overall sales clearance rate of 57%.

A conditional offer was signed on one of the passed-in properties shortly after the auction.

Prices ranged from $930,000 for a vacant warehouse/office with car parking at Penrose, to $4.25 million for a 5374 square metre development site in Botany Downs.

The net yields ranged from 5.41% for a 175 square metre retail premises with a 50 square metre outdoor terrace in Albany that was leased to Japanese restaurant Daikoku, to 6.01% for three small industrial units on separate titles in the Wairau Valley.

There is some anecdotal evidence emerging of residential property investors starting to bail out of the residential market in Auckland, where prices have been largely flat for the last three years and yields remain persistently low.

Many are finding the net yields of around 5-6% offered by some smaller commercial properties more attractive, and some are believed to be cashing up their residential portfolios and putting the money into commercial properties instead.

Details and photographs of all of the properties sold at Bayleys' auction last week, along with their selling prices and yields, are available on our Commercial Property Sales page.

Details of the residential property auctions monitored by interest.co.nz are available on our Residential Auction Results page.

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So, yet another factor that will put downward pressure on house prices.

The smart investors are buying now and therefore putting more upward pressure on commercial properties and investment blocks as interest rates and returns are dropping.

I suppose a very capital gains focus on such a purchase, even at the neglect of cash flow?

While some goods and services need a shopfront, retail is going down the gurgler right?

Good move for investors. It was only a matter of time before they saw the writing on the wall. Not such good news for residential property prices. Expect to see incremental increases in the number of lower value homes and apartments hitting the market over the next year, which will drag all the prices down further. The exit of high-value mansion-style property-owners started a while back.

Time for more popcorn.

Hi Big_Data,

Wasting your money on popcorn won’t help you buy a property.......

You need a bit more discipline.

TTP

Already have a couple, Agent TTP. Pass the salt.

All you new commercial investors: Bugger off back to residential please! The yields for us commercial investors are too low! :)

Residential yields of 6% plus are still being achieved, plus upside!
Commercial is good too, providing the building is easily leased, otherwise can be a lemon.

I guess you must still be buying right now Davo

I would if it made sense to. But 5% or so, no thanks.

When the market sentiments turns , the way it has now for residential houses specially in Auckland, it will be a while - few years for the sentiments to change again.

When market changed their was a fall and now have sort of stabilize at that fall before taking a jump - how much only time can tell.

Many who bought at ridiculous price in last few years are already bleeding - hopefully if they have deep pockets will survive or chain reaction will bleed most.

Someone bought a house in Pakuranga for 1.1 Million with a CV of $610000 (Wonder Why?) in July 2016 (Almost 3 years back) and now trying to sell which has a CV of 1.1 million (Must be based on what the vendor paid) but in today's market if that house fetches anything in 800s will be a feat - Just imagine what similarly - many must have paid earlier without any rational thinking but I guess they are the people who made heaps initially and if have got stuck at the end, is fine as long as they have made a fortune in number of earlier transaction or people in money laundering do not mind loosing money as their motive is to turn their millions which are just worthless paper in their home country will atleast have some value in money laundering heaven like NZ (So a loss of 30% to 50% is also not bad as long as getting some value out of it and what other place than NZ and real estate to park such money)

This is exactly what happens in Ponzi scheme that earlier players make fortune and all those who enter later get stuck with unimaginable losses.

Some have got away with limited loss (For some a loss of $100000 would be fatal) like 47 Stanniland street ( https://www.qv.co.nz/property/47-stanniland-street-sunnyhills-auckland-2... ) who bought in 2016 for a million when CV was $710000 and after 3 years when unable to sell for few months sold at $930000 - making a loss of appox $100000 (Still was sensible to book lose, if unable to hold for long as may go down further)

It's all about who's the greater fool

"Someone bought a house in Pakuranga for 1.1 Million with a CV of $610000 (Wonder Why?)" Simple answer; highly likely to be a money launder. Anyone that purchases a property massively over the odds should send up a big red flag, Money launders don't mind making a loss it's all about cleaning the money.

Both Canada and Australia are now starting to realize why it's a bad idea to foster a false economy. Commercial property is not immune to money laundering its know as ‘deep cover’ for those looking to launder large sums. There is considerable overlap between the residential and commercial sectors with respect to regulation and money laundering risk, but commercial property has a number of unique characteristics that require separate analysis and policy solutions. For instance, it is common to hold commercial property through special purpose vehicles – corporate entities set up to hold a particular asset or complete a specific project – whereas that is comparatively unusual in the residential sector. Large projects are also often backed by multiple limited partners who can remain behind the scenes and avoid scrutiny. These aspects make it much more difficult for outsiders to identify suspicious activity in commercial real estate.

Transparency International Report: http://www.transparencycanada.ca/wp-content/uploads/2019/03/BOT-GTA-Repo...

New Zealand government must be aware of it but to have so called Rocking Ecenomy - National turned a blind eye and many politicans who are decession makers have vested interest, so does many so call experts, media, etc.

So one does not have to be surprised like U Turn on CGT (Though what was recommended was in extreme but if wanted could have balanced it out).

Interesting this Chapman Tripp coverage of the laws Key and co changed back around 2011.

Page is now taken down but it's still Google-cached and on web archives.

Humm... Wondering how many of those commercial property were bought through shell company's / Trust companies?

This is probably just a function of the longer term government bond yield curve dips and pension fund buying, or at least I hope it is !

Genuinely hope retail punters aren't getting into this market as an alternative to residential. You need diversification in commercial space and thats best done thru a REIT or such like. There's also the small matter that when an economy stalls some commercial assets quickly turn into liabilities. Buyer beware.

Would love to know if any experts see any correlation of residential vs commercial market changes. Is there a possibility once NZs heavily residential secured lending starts to dry up when banks get even more worried about reducing equity levels does this flow onto reduced capital to spend in commercial market reducing prices also? I remember back to post GFC when house values fell like a rock it was a year or two before the real pressure hit the commercial stock with increased vacancy and yeilds/values ? any thoughts?