Latest CBRE Market View (Office/Retail/Industrial)

[fungus pudding]

Despite having to fill them in with commercially sensitive information, it will be interesting when the valuations on the basis of this information are sent out in the next few months. It is very difficult to find good data on commercial property rents otherwise.

A lot of leases are stamped. i.e. details are filed with lands and deeds. Valuers working in the C and I fields have loads of data. Commercial developers have to have their finger on the pulse. It's never too hard to work out going rental.

[fungus pudding]

Long-term, commercial has shown itself to be a better investment than residential.

Perhaps we could use this as a commercial thread?...

At the moment there are great opportunities. e.g. ING just annouced annual results today. Assett backing per share is $1.40 Shares selling at 92 cents, and because they are a PIE this shows the equivalent of 15% to a 39% taxpayer, or 14% to a 33% taxpayer. Doesn't make sense in my book. You'd have to be nuts to buy a building when deals like this are around.

[Arbitrage]

The asset backing was based on their own valuations. The discount is includes the risk that these valuations not being met upon sale. Also with a slowing economy, this could lead to higher vacancies and thereofre lower income, potentially lower rents and therefore lower future valuations.

There is nothing better than owning your own building. Sure there is a risk of vacancy, but no one sucks any management fees from you, and you have complete control. Rental yields are high and capital gains can also be high. However a good location is critical.

[fungus pudding]

The asset backing was based on their own valuations. The discount is includes the risk that these valuations not being met upon sale. Also with a slowing economy, this could lead to higher vacancies and thereofre lower income, potentially lower rents and therefore lower future valuations.

There is nothing better than owning your own building. Sure there is a risk of vacancy, but no one sucks any management fees from you, and you have complete control. Rental yields are high and capital gains can also be high. However a good location is critical.

Their own valuations will be correct though, they're not just a guess. All sales carry the risk that the valuation may not be met, but try buying a commercial building at 35% below assett backing! Your other points also apply to purchasing your own building, but there is far less risk in a pool of buildings than in single ownership. I am a commercial landlord with several buildings, and have only just become interested in the sharemarket because of these PIEs. Nothing compares with what I'm seeing in some of the property companies at present. Unbelievable bargains.

[lakedaemonian]

I can relate some very recent first-hand experience with commercial property in Christchurch.

I retained a commercial RE agency to list a property I own and interest was HUGE.

The property has been recently refurbed, a great location, a new long-term lease is in place, and the tenant is a successful, debt-free, household name.

BUT, offers were fewer than expected even though demand for quality properties with quality tenants is quite high according to the listing agency.

Offers were for anywhere as high as 9-10% yields(cheeky....assuming I needed the money) to as low as just over 7%.

My opinion is that Christchurch commercial property has changed in sentiment in the last 6-ish months.

This property would have had quite a few offers at 7% or even as low as 6.75% a year ago.

Yields are clearly creeping up from my perspective, and commercial vacancies appear, at the coalface, to be increasing noticeably.

There's been quite a bit of new commercial RE construction down here in recent years, between that and a softening economy I think yields have only one way to go.....up.

Taking the emotion out of the equation, I've seen the value of the property(based on firm offers) nearly triple in under 8 years.

I seriously wonder if these paper gains(because it's not real until the money's in the bank) are sustainable in the short-to-medium term?

My guess is no.......I distinctly recall previous valuations on this property and others similiar to it valued on a 10-11% yield which was probably a bit aggressively valued at the time. Seeing a return to or approaching those yields would see a lot of paper gains disappear and possibly negative equity for some undercapitalized commercial RE owners.

I'm still on the fence about selling as commercial RE has performed extremely well for my family in the last 7+ years.

I guess that's why I'm looking at a possible exit on this particular property......capital gains have been almost embarrassingly huge and, in my opinion, are likely to underperform going forward with yields likely to rise.

The biggest things weighing on my mind are:

1.)Inflation in essentials, how will it affect Commercial RE

2.)Inflation in wages, how will it affect Commercial RE

3.)Inflation in imported goods as the Kiwi drops, how will it affect Commercial RE

4.)Deflation in asset prices and durable goods due to contracting credit and how it will affect Commercial RE

I THINK I've made up my mind.......but I typically have a hard time letting go of my "buy for forever" philosophy.

Just my opinion and experience

[lakedaemonian]

Well four months on and things have changed quite a bit!

The commercial market has softened considerably in Christchurch.........commercial mortgagee listings are exploding and vacancy rates seem to be climbing upwards anecdotally.

The recent National Bank CBRE auction results with some crazy low yields has resulted in a renewed flood of agents, tours, and offers in my last remaining property which I had taken off the market after interest subsided.

Our latest offer received today is just a hair below our arguably quite high asking price......much to ponder

I'd say we will know this month whether we are selling or keeping it for the long-haul.

IF we sell.......we will REALLY be cash heavy.......once again putting my money where my mouth is........fingers crossed.

But my gut tells me commercial RE in my local patch is in for a rough ride going forward in the short-to-medium term.

[Dr_Who]

I am wondering what the commercial properties with bank tenants are going for these days in the US? 20% yield? LOL

[lakedaemonian]

I am wondering what the commercial properties with bank tenants are going for these days in the US? 20% yield? LOL

Good question......but I do know a lot of Commercial was built and sold at 2,3,4% yields......absolutely insane.

It's possible that as consumer spending slows down and retail trade shrivels up, some commercial retail space in the US could see haircuts easily over 50%.

Overbuilt is an understatement for some areas.

[lakedaemonian]

Well we have accepted a conditional offer on our last remaining commercial property.

The upside is we are getting our price! High quality tenants + long leases seems to be the ONLY thing selling easily for a premium, or selling at ALL right now

The downside is that the deal doesn't go unconditional for nearly a month.

With the velocity and scale of recent problems....a month is a bloody long time......but the offer is from a big player with substantial resources.

Fingers crossed!

I reckon I'd be happy to jump back into commercial RE...sometime around 2011-2015 I'm guessing.

Vacant commercial RE is going to get DESTROYED if owners get nervous about ballooning holding costs.

I reckon an inner city market like those in Sydney and Melbourne would suit Christchurch long-term.......

Now if only we could sell our old house!

[lakedaemonian]

Well the saga continues for us!

Our last conditional offer fell over.....

We just entered into one today that looks pretty solid.

Yield in the mid 7's, suprisingly.

Fingers crossed, we go unconditional in a couple weeks!