While residential investment might be getting harder, many people are finding new opportunity in the world of commercial property outside of the main centres.
With a career spanning property finance, development and sales, Waikato/Bay of Plenty Property Brokers Commercial Manager Alan Copeman is on the coalface of the commercial market in the Waikato region. In this blog, Alan talks about how to make the shift into commercial, growth areas for the economy and the Waikato's hidden gems.
The recent residential changes have resulted in a marked upswing in commercial space interest. People are looking to buy commercial and industrial property because they see it as a good, safe investment.
Additionally, there's a lot of businesses leasing large industrial buildings that are certainly coming back into the market since Covid. A lot of that's probably because they're expanding their operations in New Zealand because they can't necessarily import stuff from overseas, so they're benefiting from that.
What you're starting to see is provincial New Zealand coming back into flavour with investors. There are many provincial places in that retail space, and even office and industrial, there's very low vacancy rates.
You're starting to see a bit of a shift, especially in the Waikato area where Auckland companies are looking to relocate their operations down into the Waikato, and that's putting pressure on the market and creating price increases.
People are just looking at whether they can relocate purely for lifestyle. They put some money in the bank, get a business that they can operate, have that flexibility, and get just as good a return without being locked into those main metropolitan centres.
You're probably getting a better return in that commercial space in the current market than you are residentially. We've got investors that say, residentially, they're at 3.5-4% because of where the market's value in those properties has gone. Whereas, with commercial, you can still pick up a 5 or 6% return. So, in some cases, you are probably getting twice the return, and there are a lot fewer restrictions on that commercial space.
The Residential Tenancy Act has made it trickier for landlords. People are taking their money away from that residential space and are increasingly parking it into some of those lower-value commercial investments. You can pick one up for $500,000 and still get a $30,000 return. We are starting to see a big shift in that happening.
You've usually got to come up with a 40% deposit on commercial when you're on your own. Because the residential market is headed that way, banks could potentially start to look at doing 70-75%. I think if you're getting some good blue-chip investments, it would be good to see them start to relax that again and start to encourage people back into those markets with a lower deposit.
A lot of people are looking at heading into the industrial sector. The past 12 months haven't really impacted on those production and manufacturing sectors. If anything, it's probably strengthened them.
Post Covid, we're starting to see more businesses start up in the regions because residential property is cheaper for their workforce as well. A recent example of this is an Auckland manufacturing business looking to relocate to the Waikato, with them also purchasing a residential property down there.
People have also taken stock, and have sat back and thought, from a lifestyle point of view, 'I could have a business in a provincial town, have a bit of money in the bank and have a total lifestyle change.'
Another trend on the upswing over the last ten years has been significant growth in the syndication market. People get the benefit of only putting $50,000 or $100,000 into a property, and someone manages it, and they get a good return. It can be from a 5 to 7.5% return.
If you don't like share markets or bonds, that's a good alternative to that. People know that it's a good, safe investment. I think syndications will continue to grow. Their biggest challenge is probably securing the product to be able to offer to those investors!
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