Header Ad Module

Collapse

Announcement

Collapse
No announcement yet.

I went for a walk today . . .

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • I went for a walk today . . .

    . . . in Newmarket (Auckland) which calls itself the hottest retail precinct in Auckland.
    Starting at the Newmarket end of Gilles Ave, there is a large stand-alone retail site ex-camping/outdoor store empty and To Lease.
    Crossing over the road and past Resene paints there is a sizable upmarket bathroom decor shop - all closed up and Liquidator Appointed signs alongside 'To Lease' posters in all the windows. Next along is a block of offices 710sq.m with 19 car parks - To Let/To Lease. Finally, on the Khyber Pass corner of the street, an immense restaurant area is also vacant and available. I recoiled from that and bolted down Kent Street to the Rialto Arcade, where both shops alongside the entry are unlit and display 'To Lease' posters. Heading up Broadway, opposite the Remuera Road intersection, a smaller shop that used to sell linen has folded, now the temporary home of a closeout book store.

    There has got to be number of commercial Landlords out there really hurting with vacancies at such a level. Quite ruined my day.
    Last edited by flyernzl; 18-07-2008, 12:46 PM.

  • #2
    and there is a lot of commercial buildings still being built, the exact opposite of residental.

    Seem to me there is going to be a huge over supply of commercial soon.

    Allan

    Comment


    • #3
      commercial slump usually always follows residential.

      Comment


      • #4
        Originally posted by chook View Post
        commercial slump usually always follows residential.
        usually always? Which is it - usually or always?

        Comment


        • #5
          umm my guess is 'always' in recessionary times. It makes sense as people buy less, retail businesses suffer, and many end up shutting up shop - leaving the retail premises empty - which is what you witnessed on your walk.

          All the sales happening right now can not continue for the duration of the recession aye! I mean if the recession lasts 3 years as it has been predicted, businesses can not offer huge discounts forever aye.

          Cheers,

          Donna
          SEARCH PropertyTalk, About PropertyTalk

          BusinessBlogs - the best business articles are found here

          Comment


          • #6
            Much of the rise in the value of commercial propery has been driven by a change in the return people accept. Whereas they were only happy with 10% or better the acceptable returns have dropped to 6-7% giving large increase in capital value.

            I do wonder if in these less certain times the 10% expectation will come back and the value of the property will drop significantly (with no change in income).

            Comment


            • #7
              I reckon yields have to rise over time.

              To borrow commercial money, about the best you can do is 9.5% at the moment, and often it's higher.

              So unless you put in a lot of capital, a yield of 7.5% or 8.5% leaves you with a large loss each month.

              If you can add some value to the property and maybe increase the rents it might be worth it. But usually this is already priced in (i.e. added onto the asking price) and so no gain like that can be made.

              So why would you buy a commercial property right now? Not sure really. It seems to me that over the last couple of years they've pretty much all been fairly well overpriced.

              Oh and yes, I was selling commercial real estate during the last slump (98-00) and you couldn't get people to buy commercial real estate hardly at all. And the downturn came 6-12 months after the residential one. They all wanted over 10% (10% was just the baseline return that everyone was offering) and they had to be in a good location, with a good tenant on a good lease. It seems hard to believe (given the bullish demand in recent years) but interest in commercial property just dried up.

              And rents stayed the same for ages. They literally didn't move for say 7 years (93/94 to 2000/01. There was an oversupply of property (some still kicking around from the 80s!) and so that had to be mopped up first.

              I reckon this will happen again.


              David
              Squadly dinky do!

              Comment


              • #8
                Totally agree.
                The market is hitting landlords at both ends.
                The cap rates are heading up. (prices dropping) at the very same time as "asking" rents are coming down. Huge incentives are being offered to tenants to get them to sign on for three to six years.
                So if the cap rate moves up from 7.5 to 10% (30%)and the new rents head down say 20 to 30% this must mean the cap values will drop about 50 to 60%.
                What do you folks think.

                Comment


                • #9
                  I agree. In the Albany area there are street after street of new spec commercial premises, well built and finished.Sadly half of them are empty and have been for a couple of years.I would think that when tenants leases expire , rents will come back to maintain existing tenants. I think there is more bad news for commercial in most locations.

                  Comment


                  • #10
                    Singing from the same song sheet...

                    Originally posted by Davo36 View Post
                    I reckon yields have to rise over time.

                    Oh and yes, I was selling commercial real estate during the last slump (98-00) and you couldn't get people to buy commercial real estate hardly at all. And the downturn came 6-12 months after the residential one. They all wanted over 10% (10% was just the baseline return that everyone was offering) and they had to be in a good location, with a good tenant on a good lease. It seems hard to believe (given the bullish demand in recent years) but interest in commercial property just dried up.

                    And rents stayed the same for ages. They literally didn't move for say 7 years (93/94 to 2000/01. There was an oversupply of property (some still kicking around from the 80s!) and so that had to be mopped up first.

                    I reckon this will happen again.
                    So do I David. Strongly. And other experienced investors agree...

                    Originally posted by Commercial Real Estate Investors Guide (2004)

                    As individuals our emotions vary with circumstances and
                    it’s just the same with sentiment. A herd mentality emerges
                    in markets, with sentiment ebbing and flowing in waves
                    or cycles. It’s this herd aspect which sometimes makes it
                    difficult to recognize or resist the flow — yet this is exactly
                    what counter-cyclical investing demands. (This is also known
                    as the contrarian approach, because the contrarian investor
                    takes the contrary view to the majority or the market. More
                    on this later.)

                    Learn from the past
                    Observation of past property cycles leads to the conclusion
                    that markets repeatedly go through a cycle. In its simplest form
                    it is: high–slump–low–recovery–high–slump–low–recovery.
                    Good times are always followed by bad times and bad times
                    are always followed by good times.
                    What varies from cycle to cycle is the intensity and the
                    time between peaks — whether high or low. There are often
                    false starts between major peaks.
                    This pattern is so well established as to be labelled
                    predictable — it’s not a matter of if the boom (high) will
                    end, just a matter of when and how suddenly. Likewise, it’s
                    not a matter of if the recession (low) in the market will ease,
                    it’s a matter of when and how firmly the following rise will
                    take hold.
                    Experienced investors know that the market always
                    turns — it just doesn’t feel as if it will.
                    I've never subscribed to the "it's different this time" view.
                    Sorry (or hooray?), it's the same or similar.

                    But it isn't pretty for the general economy. The slump is a 'side-effect'.

                    regards,
                    Peter Aranyi
                    Blog: www.ThePaepae.com

                    Comment


                    • #11
                      Originally posted by Dean View Post
                      I agree. In the Albany area there are street after street of new spec commercial premises, well built and finished.Sadly half of them are empty and have been for a couple of years.I would think that when tenants leases expire , rents will come back to maintain existing tenants. I think there is more bad news for commercial in most locations.
                      Man, I was interested to read this. I had been looking quite seriously at a property in Omega Drive in Albany. If I had have taken it any further, I would have looked into the vacant premises more so. As it was, I decided it was a pretty average deal (despite the agent saying it was very cheap - property initially on the market for $2 million, now for sale at $1.4) and so didn't do anything. I did however notice, just driving around, the large number of 'for lease' signs.

                      The property I was looking at was vacant. It has been for some time. The agent tells me he hasn't tried to lease it (the owner didn't want it leased?!) but is doing so now. The agent was also quoting me a 'low' rental figure which he was trying to get now and the real 'market' figure that it would go to later.

                      I tend to get a bit suspicious hearing that sort of thing. Surely the rental figure being put to the market is THE market rental. Anything above that is speculation and may eventuate or may not.

                      And why would the owner sit there with it vacant if he could lease it? The agent tells me he's very wealthy. Well, very wealthy and dumb maybe. Even if you have lots of dosh you wouldn't give up over $100k of extra income. Thinking about it now, he probably couldn't lease it at a figure which would give him a decent sale price when the relevant cap rate was applied.

                      Today I read yesterday's Herald. Around half a dozen properties being advertised at 10% or over now - in the property investments column. So I think slowly things are coming around.
                      Squadly dinky do!

                      Comment


                      • #12
                        Davo,Yes , Omega Drive, Apollo and the streets off is the area I refer to. I have a friend who purchased a floor in a strata title building around there. He had a solid tenant for half of it but can't let the other half, almost a year latter. Seemed a good deal at the time, only risk was letting the other half!!

                        Comment


                        • #13
                          Oh my goodness.
                          I was looking at the same properties on Wednesday. Exactly the same thoughts went through my mind.
                          If the supply exceeds the demand it is simple. Something must sit empty and the properties that get let are the ones that give the tenant the best deal. The agents were talking about massive rent holidays or vendor head leases for two years. My guess is those propeties that have tenants that are being offered for sale have tenants that are being handed a property for next to nothing with an apparent high rent.
                          Just as well I was not kidnapped by an agent and stuffed in a cupboard for five days.

                          Comment


                          • #14
                            Yes Glenn, you were very lucky. Just around the corner last week someone was kidnapped and stuffed in a cupboard.

                            Comment


                            • #15
                              The salesperson rang me again today saying the owner really really wants to sell.

                              He's a nice guy the salesperson and I have a lot of time for him but really see no reason to buy this property.

                              It's still too dear a the asking price. And the owner 'really really' wants to sell but won't accept an agreement conditional upon it being leased.

                              He then also said 2 things: 1) The rent he would try to get is now $120k, not the $133k he mentioned last week, so there's now a new low rental figure - I'm sure if I bought it this would drop further and b) there's a tenant looking at the property but he wants a full commercial kitchen put in by the landlord (it's a coffee related business). A week or so ago I mentioned to the salesperson that to rent it I'd probably have to offer some incentives like a rent holiday, fitout etc. He said they don't do that on the Shore! I said really? But it turns out that's exactly what's needed...

                              David
                              Squadly dinky do!

                              Comment

                              Working...
                              X