The market for small commercial investment properties in suburban Christchurch, New Zealand is booming as buyers search for higher-returning investments amid ongoing low interest rates.
Booming retail & commercial market
The buyer market in Christchurch is very strong for smaller retail investment properties in popular and fast-growing suburbs. We have received very high demand for commercial investment properties under the $2 million mark over the past year, especially retail properties in strong-performing locations.
People are lining up for this type of stock and demand far exceeds the availability of properties for sale.
In many cases, properties are being sold to investors who live locally. Buyers often favour local investment properties, where they understand the dynamics of the tenants’ businesses. They have spent time at the properties, often as regular customers themselves, observing how well the tenants seem to be trading. This gives them increased confidence to invest.
Residential diversifying to commercial
Another buyer trend is residential investors diversifying into small commercial holdings, with commercial property perceived as being relatively hassle-free and easier to manage.
We have come across a lot of buyers who have had some residential investments and are now looking to the commercial market as an alternative.
Commercial property offers many attractive fundamentals when compared with residential property investments. These benefits include generally longer lease terms, which span a period of years rather than six months to one year; providing better security of tenure.
Commercial property leases are also usually on a net basis, (rather than gross as in the residential investment market), meaning certain outgoings such as insurance and rates are paid by the tenant.
High demand from businesses for small, affordable retail units in good suburban locations also means vacancy rates are low, giving buyers confidence that their properties are likely to be easily re-leased if necessary.
Examples of campaigns following this approach
A current Savills sales campaign for a multi-tenanted commercial property at 236 Centaurus Rd, St Martins, leased to popular local café Fava, a hair salon, fish & chip shop and also including a three-bedroom flat has generated 36 enquiries.
The property has been held by its family owners since the 1980s. Most of the buyer interest came from locals who were already familiar with the property and its occupiers.
The property’s split-risk income stream, favourable local commercial zoning and the potential to redevelop the residential flat into another commercial unit were further drawcards.
Local interest was also strong for a small retail unit at 65 Carlton Mill Rd, Merivale, leased to a florist for a new six-year term. The unit was sold to a local investor for $683,000 in December 2017, representing a 6% yield.
Similarly, a unit in a new convenience retail development being constructed at 29 Ensign St, Halswell, leased to a pharmacy, sold to a local investor for $740,000 in April 2018, representing a yield of 5.87%.
The development, called Oaks Village, is designed to help cater for the significant growth in housing developments in the south west of Christchurch. It is set to open later this year. Buyer enquiry is expected to be high for the small number of investment units in Oaks Village which are still for sale, including one leased to a gym operator for a six-year term.