Hindsight is wonderful (foresight is even better), so it is important to remember that the last 10 years have been exceptionally good times for many businesses, investors and developers. During the last month we have had an increasing number of calls from clients and customers, asking about the state of the market and where will it go from here – should I wait, what will interest rates do, what are yields and rental rates doing ?
It’s all crystal ball stuff, but what I do know from history and the financial cycle clock being at five past 12 (or later), is that acting now is likely to have a better outcome than doing nothing at all. Invariably those who seek to buy at the bottom or sell at the top, do neither and end up looking with envy at those who just made a decision and actually did something.
“In the business world, the rear-view mirror is always clearer than the windscreen” Warren Buffett CEO of Berkshire Hathaway
Yes, yields are softening and with the rise in the OCR, that invariably had to happen. It’s not as bad for true A grade assets, but when the cost to borrow is greater than the property yield achieved, yields must be affected. The rising cost of construction is impacting on rental rates across the commercial and industrial sectors, which will also continue. So what can you expect ?
For Sellers
If you didn’t pick the top of the cycle, selling today is still likely to be better than selling tomorrow – until such time as that is not the case. The economy is still awash with cash looking for a home, but this will change as the government starts to roll back its fiscal stimulus. It is not a time to test the market, but if you have a genuine reason to sell, then there are still keen buyers, both investors and owner occupiers.
For Buyers
When you see a property that you like and it meets the criteria you have been seeking, then act. The rising cost of new buildings will lead to capital growth and increased rental rates for existing property over time. Those that purchased at the peak of the market in 2007 prior to the GFC, at prices which were off the charts, today look like rocket scientists – time cures all things.
For Landlords
Occupancy rates are at or near all-time highs. While this could continue, it may be time to consider the bird in the hand. Last week we had 3 offers for one industrial unit, where the Landlord secured the best terms.
We also had an offer for a Landlord of another small industrial unit. It was at the asking rental with no incentive requested by the Tenant. Our offer was declined in favour of another they apparently had – two days later they came back to ask if our party was still interested, but they had already moved on and therefore declined. Subsequently it was listed on TradeMe the day after, as still available.
For Tenants
Construction costs are rising and therefore we are likely to see rental rates continue to rise. If you act now, then you will lock in value and a rental rate based on today’s terms. Low vacancy means that you are unlikely to find a premises that meets all of your requirements, but if it meets your most important criteria, then by acting now you may secure it and in turn your continued business success.
“We simply attempt to be fearful when others are greedy and to be greedy when others are fearful” Warren Buffett on the success of Berkshire Hathaway
You do things when opportunities come along. You can only act in the market you are in, as you cannot turn back time, nor predict the future with any certainty.
There are certainly some head winds ahead – Be thankful you dont own crypto currency. Talking to colleagues and other professionals around the country, it continues to be apparent that the momentum and volume of development we are seeing across all our property and business sectors, is almost unique to Hamilton and the Waikato – below the radar are more significant head winds in the other major centres and indeed the other regions around our country. This is all underpinned by our low risk profile, continued immigration and broad range of businesses that have chosen to be here.
Hamilton City Council has just released its Economic and Growth Indicator Report, which makes interesting reading and provides insights for anyone considering reasons to invest in Hamilton: https://issuu.com/naiharcourtshamilton/docs/2021_growth_indicator_report
