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Private capital remains most lucrative investment source for NZ property into 2023

Ryan Johnson

That puts New Zealand on track with the international trend identified in the latest The Wealth Report published by Bayleys Real Estate’s global real estate partner Knight Frank. The report found private capital, or ultra-high net worth individuals (UHNWIs) to be the main - and growing source of global real estate investment.

Knight Frank identifies an ultra-high-net-worth individual (UHNWI) as “someone with a net worth of US$30 million or more, including their primary residence.”

The next largest source of investment in New Zealand was institutional investors who spent $1.04 billion on real estate in 2021, which was down 25 percent on the year prior. Syndicators spent $664 million on property in 2021, making them the second-largest growth group, up 17 percent year on year.

According to Knight Frank’s The Wealth Report , private capital now accounts for 35 percent of all global investment transactions. With 23 percent of UHNWIs planning to invest in property this year, the report tips office space to be the biggest target, with logistics moving to second place ahead of residential for the first time.

Bayleys’ national director commercial and industrial, Ryan Johnson, says the same trend has been clearly visible in New Zealand, predominantly from domestic investors with some offshore.

“The last two years of border restrictions have seen private capital investment significantly outweigh any other buyer group in New Zealand,” Johnson says, adding that in those two years New Zealand has offered close to the highest total returns by MSCI on capital growth and income.

“What’s changing is that New Zealand has separated itself from the rest of the world in its monetary policy, specifically the Official Cash Rate (OCR), and we’ve seen the highest period of inflation for more than 30 years,” Johnson says.

“Everybody is now looking at what that’s going to do to yields, relative to the cost of debt.”

While private investment will continue to be a major source of real estate investment into 2023, given real estate’s defensive hedge against inflation, Johnson says other sources will start to make more of an impact.

“The trend is certainly going to be continued capital flowing into New Zealand commercial real estate, but probably for the first time, it’s going to come from a lot of sources.

“It’s going to come from offshore in a significant way, but it’s also going to come from Kiwisaver providers. What we’ll also see is less investment from syndicators, which have been one of the bigger investor types over the past 24 months.”

When it comes to what those investors will be interested in spending their money on, Johnson expects the prime office sector to see renewed interest from offshore institutional investors, private investors will seek our non-discretionary assets, strong cash flow core-plus assets, and hotels. Industrial will remain highly sought after across the board.

“The trend that is quite New Zealand-specific will be the ongoing interest in food-related supply chain properties with uses across warehousing and cold stores,” Johnson says.

He also predicts investment in life sciences properties such as healthcare and retirement properties will be a notable trend over the next five years.

Outside of inflation, the Wealth Report found 80 percent of global investors want more ESG (environmental, social and governance) compliant assets to future-proof their portfolios, with a particular emphasis on the ‘E’.

“There is an increasing interest from grassroots investors in knowing exactly what they are investing in, in terms of environmental and sustainability credentials.

“Ratings like NABERS and Green Star are carrying more weight with investors, and some of the world’s biggest global fund managers are mandating that investments be filtered for environmental and sustainability criteria,” Johnson says.

Looking ahead, Johnson says the key to risk management in the current volatile environment is being well-informed.

“You could argue 2022 will experience the highest levels of volatility we’ve had in 50 years, and it comes after a decade of real stability and favourable conditions in commercial property.

“It will be increasingly important to keep up with the data and trends and lean on insights from companies like Bayleys to inform investment decisions and identify opportunities that arise.”

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