Beyond the bridge
Just another part of Auckland – perhaps that’s what property investors outside of the isthmus that is New Zealand's biggest urban centre might think of the North Shore. But local investors tend to segment themselves along city within city boundaries when it comes to Auckland.
Monday, September 5th 2005, 10:13AM
They stick to what they know: Auckland City, Manukau, Waitakare or North Shore City. Hence it's not surprising that the North Shore has its own sub meetings of the Auckland Property Investor's Association.
Investors and real estate professionals alike rarely mention influences south of the bridge when discussing the North Shore market. What concerns them more is further north – the new “town centre” at Albany on the northern fringe, the great swathes of new housing development in the Albany basin and Greenhithe areas, and the long awaited connection between the northern and north-western motorways at Constellation Drive.
Other key factors opening up this northern area include the park and ride and bus system currently under construction, and the growth of Massey University's Albany campus.
With a population of more than 200,000, the North Shore outstrips cities such as Hamilton (125,000), Dunedin (just over 120,000), and Tauranga (98,500). A big city in its own right, the North Shore has very diverse areas ranging from some of the most expensive property in the country in the Takapuna/Devonport area and just about anything on the coast, to relatively cheap areas, by Auckland standards, such as Beachaven, Birkdale and Glenfield.
Yields, say North Shore member of the APIA, Neil Hoskings, are best in those lower-costs areas. His comments are backed up by Infometrics data which shows yields of 5.4% in Glenfield, 3.9% in Albany and 3.1% in Devonport, which had the highest median sales price in North Shore.
Anything within sniffing distance of a beach on the coast stretching from Devonport north all the way to Long Bay has yields so low that anyone with an eye for yield steers clear.
Opinions differ as to whether Albany will be beneficial for investors. Michael McCook, who owns accounting firm Accountability which specialises in the property investment market, believes that residential property in Albany and nearby Greenhithe is a good long-term investment, although he thinks house prices will be held back in the area until the “green areas are gobbled up” – a process he expects to take five to ten years.
Meanwhile the low yields are enough to keep some clear of the area. Mark Percy, organiser of the APIA's monthly North Shore meetings, says the low yields would keep him out.
Traditionally the lower socio-economic areas of Birkdale and Beachaven in the west of the city have spelt trouble for landlords. Some think that, just maybe, the gentrification promised for the past 20 years may be on its way but many landlords still believe anything west of Glenfield Road spells trouble.
The suburb of choice for many investors is Glenfield. McCook believes that both Glenfield and Hillcrest are areas to watch. “I would take a punt that you are going to get good yield and good capital growth (over the long term),” he says.
Percy also believes the area may become a trendy area in the future.
On the sales front, Harcourts North Shore managing director Martin Cooper says while activity in the higher brackets has slowed, sales are holding up in the cheaper end of the market, up to $400,000, with multiple offers still a feature.
A survey of sales in October, 2004, showed investors making up 17% of the market, whereas that figure had jumped to 30% in July of this year. However Cooper said one noticeable trend was the numbers of experienced investors selling and taking profits in the last two years.
Barfoot & Thompson's Grant McKenzie agreed that he had also seen a profit-taking trend. He said that over the past six months rental prices across North Shore City had come back, although they are still ahead of what they were six months ago.
Likewise rental supply was on the increase. Last year, said McKenzie, it wasn't uncommon for his office in Glenfield to have just two rental properties available.
Today the lists are starting to lengthen with around 15 available at any one time in his office. Population growth – one of the biggest drivers of the recent boom across Auckland's cities – has slowed. Even so, Statistics New Zealand predicts that the North Shore's population will rise from just over 200,000 people to 275,000 by the year 2026 – a healthy growth in anyone's eyes.
The economy is growing as well. According to Enterprise North Shore the total number of businesses is expected to increase by 7,550 to 29,200 by 2021. Collectively they will employ 108,900 full-time equivalent employees, up from 80,900 in 2004.
The key sectors driving the North Shore City economy are business services, retail and distribution, and manufacturing and building.
According to Dr Ganesh Nana, from Business and Economic Research Ltd, North Shore City has outperformed the Auckland region: • GDP growth, at 4.7%, is greater than the Auckland region (4.4%) • GDP per capita growth, at 2.5%, is slightly higher than the Auckland region which has 2.3% growth; • Employment growth, at 5%, is greater than the Auckland region (3.1%); • The number of business units grew by 9.7%, which was faster than the Auckland region (8.9%) • Productivity growth decreased by 0.3% while there was productivity growth in the Auckland region (0.5%); • The size of businesses in North Shore City contracted, but at a slower rate, 4.2%, than the Auckland region (-4.6%).
The North Shore also has considerable opportunities for entry-level commercial investment.
Derek Wallwork, who owns commercial broker Omega Property Specialists, said a good starting point would be a small commercial property on a unit title in a good location where tenant demand is expected to be fairly strong.
“Albany is popular, since the attractive industrial park type environment has created tenant and investor interest. However, locations such as the Wairau Valley warrant serious consideration as rental growth expectations can be good, particularly if the area undergoes a “Chelseafication” with redevelopment lifting the appearance of this area.”
However he warned that there was currently a diminishing supply. “The restricted supply has been caused by various factors. Firstly, existing owners are reluctant to sell as they are not confident of replacing the property and still have faith in the market continuing to rise. The situation has been exacerbated by many small businesses opting to purchase their premises rather than lease, creating fewer investor opportunities.
“There is a ready supply of vacant, small properties which investors can purchase in the expectation that they will find a tenant, and many properties have sold on this basis. However, many investors prefer to wait for a leased opportunity to come along as they are unwilling to take such a risk, particularly with office property where there is no shortage of supply.”
As with many parts of the country, experienced investors are expecting bargains to hit the market any time soon as newer landlords find themselves struggling to top up the mortgage.
McCook says: “I think over the next 12 to 18 months there is going to be a lot of vacancy. People who bought rental property on spec expecting to make a quick buck will find themselves coming off fixed-interest rates on to 8%. They will be subsidising rent by $150 a week and they are likely to be struggling. I think there will be a lot of bargains in the market. The market has a way of weeding out the weak links.”
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