Office space tipped to be the biggest target by ultra wealthy investors. (Photo file)
Private investors spent close to $ 1.4 billion on property last year, up 52% on 2020, the largest source of real estate investment.
That puts New Zealand on track with the international trend identified in the latest The Wealth Report published by Knight Frank. The report found private capital, or ultra-high rich were the main real estate investors.
The next largest source of property investment in New Zealand were institutional investors who spent $ 1.04b on real estate in 2021, down 25% on the prior year. Syndicators spent $ 664 million on property in 2021, making them the second-largest growth group, up 17% per cent year-on-year.
The report found private capital accounted for 35% of all global investment transactions. With 23% of ultra wealthy investors planning to invest in property this year, the report tipped office space to be the biggest target, with logistics moving to second place.
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Bayleys’ national commercial and industrial director Ryan Johnson said the same trend was evident has been clearly visible in New Zealand, predominantly from domestic investors, and some form overseas.
“The last two years of border restrictions have seen private capital investment significantly outweigh any other buyer group in New Zealand,” Johnson said.
In those two years New Zealand had offered close to the highest total returns on capital growth and income, he said.
“What is changing is that New Zealand has separated itself from the rest of the world in its monetary policy, specifically the official cash rate, and we have seen the highest period of inflation for more than 30 years,” Johnson said.
“Everybody is now looking at what that’s going to do to yields, relative to the cost of debt.
“The trend is certainly going to be continued capital flowing into New Zealand commercial real estate, but it is going to come from a lot of sources,” Johnson said.
“It is going to come from offshore in a significant way, but it is also going to come from Kiwisaver providers.
“What we will also see is less investment from syndicators, which have been one of the biggest investor types over the past 24 months.”
Johnson said he expected the prime office sector to experience renewed interest from foreign institutional investors. Private investors would seek non-discretionary assets, strong cash flow core-plus assets, and hotels.
Industrial would remain highly sought after across the board, he said.
“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 said.
He also expected investment in life sciences properties, such as healthcare and retirement properties, would be a notable trend over the next five years.
Outside of inflation, the report found 80 percent of global investors want more environmental, social and governance compliant assets to future-proof their portfolios, with a particular emphasis on environmental.
“There is an increasing interest from grassroots investors in knowing exactly what they are investing in, in terms of environmental and sustainability credentials,” Johnson said.
“Ratings like Nabers and Green Star are carrying more weight with investors, and some of the world’s largest global fund managers are mandating that investments be filtered for environmental and sustainability criteria,” he said.