Over $100m of Private Money Looking for a Home in Commercial Property

Local private investors are thought to be sitting on over $100m of cash which they want to use to buy central Christchurch commercial property priced under $2m, according to Savills Real Estate.

Jonathan Lyttle, managing director of Savills Christchurch office, says anecdotal evidence suggests a large number of individual buyers have up to $2m of investment money which they want to place in well-located and strongly-tenanted small investment properties, but are facing a dire shortage of suitable stock.

“Investors making enquiries about several of our recent property offerings have told us they want to add commercial property to their portfolios, but they can’t find buildings that meet their requirements. The supply of smaller commercial buildings in central locations, leased to one or two tenants on good lease terms, has become very limited since the earthquakes.”

A property recently marketed for sale by Savills, at 78-80 Oxford Tce, attracted 65 separate enquiries before selling for $1.2m, representing a 5.75% yield, Lyttle says.

“78-80 Oxford Tce is a compact, affordable two-level investment property with a dual income stream that offered exactly what private investors are looking for.”

These characteristics included a prime riverside location in the CBD, walking distance to the Justice & Emergency Services Precinct, the PWC Centre, Ngai Tahu Property’s King Edward Barracks site and the Cashel St retail and office hub. Two well-established Christchurch-based businesses, Tandem Studios and Cequent Projects, occupy the property.

“Accessibly-priced CBD assets like this one are particularly sought-after at the moment as the major government and private developments in the city start to take shape. The location was a major draw for buyers given the construction activity happening in the surrounding area.”

Once the big government and corporate tenants move in from next year, rental growth and value increases for existing properties is expected, says Lyttle. “Rental upside potential on CBD property is attracting investors looking to lock in central city property at today’s prices.”
Investors have also recognised that in the current low interest rate environment, commercial property offers a much better return than cash sitting in the bank, he says.

“Even though prime commercial property yields have been trending downwards, the asset class still offers a very significant return margin over bank deposits.”

Many investors looking for commercial property holdings are first-timers to the market, who already own residential property but are looking to diversify, Lyttle says.

“There are also quite a few small business owner-occupiers looking to buy premises in the CBD and make a move back to the central city, however they are also facing a shortage of stock as most of the new developments being constructed are aimed at medium to large-sized organisations.”