NOVEMBER 2011 | COLLIERS INTERNATIONAL RESEARCH

NEW ZEALAND

RESEARCH REPORT

THE ONLY CERTAINTY IS UNCERTAINTY

What should the local property market make of all the economic volatility and growth downgrades overseas? To a basic noneconomist it means confidence will falter once again, and debt will become harder to find, not helped by New Zealands change of credit rating. The effect of that is not just on the property supply (ie development/investment) side of the equation but also on the demand side. Businesses holding back on investment and hiring decisions are less likely to want to move to new premises. Every participant will need more equity to make things happen.
Many astute private investors have been active throughout the GFC and many will continue to be so, largely unaffected by such mundane matters as the availability of debt, but for the majority of regular businesses, from manufacturing to investment, it just prolongs the uncertainty and acts as a disincentive to action. CHRISTCHURCH INDUSTRIAL The chart to the right shows, unsurprisingly, that industrial vacancy has reduced in the main industrial precincts of Christchurch. Indeed overall it has nearly halved, from 8.9% 12 months ago to 4.6% now. The only prime grade vacancy in the precincts monitored is in Middleton/Sockburn. Buildings which are not available, by reason of damage for example, are withdrawn temporarily from our total stock. Capital values have been declining in Christchurch for some time, see second chart, but these improved vacancy numbers offer some prospect of strengthening values in the next six to 12 months for properties which are capable of occupation. Staying with Canterbury, we have calculated the amount of actual vacant developable land as part of the analysis for our upcoming National Industrial Report. The third chart illustrates where all that land is, in the region. Two-thirds is in Ashburton, Selwyn and Christchurch City. Further analysis of developable land availability in the three main regions will appear in our detailed report later this month.

CHRISTCHURCH INDUSTRIAL VACANCY

Sep-10 16% 14% 12% 10% 8% 6% 4% 2% 0% Overall Hornby/Islington Middleton/Sockburn Sydenham Sep-11

Source: Colliers International Research

ANNUAL CHANGE IN PRIME CAPITAL VALUES

Auckland Industrial 20% 15% 10% 5% 0% Sep-05 Mar-06 Dec-06 Dec-05 Dec-07 Jun-07 Dec-10 Mar-10 Mar-08 Dec-08 Jun-06 Sep-09 Dec-09 Mar-07 Jun-10 Mar-11 Jun-08 Mar-09 Sep-06 Jun-09 Sep-07 Sep-08 Sep-10 Jun-11 -5% -10% -15%
Source: Colliers International Research

Christchurch Industrial

CANTERBURY REGION VACANT INDUSTRIAL LAND

Waimakariri District 7.7% Timaru District 16.4% Waimate District 1.2% Waitaki District 0.1% Ashburton District 19.1%

Christchurch City 24.9%

Selwyn District 22.3%

Hurunui District 1.7% MacKenzie District 6.3% Kaikoura District 0.3%

Alan McMahon National Director, Research and Consulting alan.mcmahon@colliers.com

Source: Colliers International Research

www.colliers.co.nz

Sep-11

NOVEMBER 2011 | RESEARCH REPORT | COLLIERS INTERNATIONAL RESEARCH THE ONLY CERTAINTY IS UNCERTAINTY CONTINUED... RESEARCH GOES RESIDENTIAL This report marks a new departure for our research coverage in New Zealand as we venture into the residential market. We aim to improve our understanding of the dynamics of new house and apartment development, in part so that we can better advise our clients in this area. Rather than concentrate on median prices, which is a topic of great interest to homeowners but is already covered by others and doesnt shed light on the bigger issue of supply, we are more interested in development activity. We have analysed historic data from 2006 to try to gain an understanding of residential development activity. Our aim is to address one of the biggest questions facing our industry and on which there seems to be virtually no market intelligence how many new dwellings are being built and sold, and is that going to be enough to house an expanding population? To the historic data we will add, in due course, predictive elements based on past trends and economic and market indicators of future supply, in particular building consent data. These questions are under the spotlight partly as a result of debate around new draft plans issued by Auckland and Christchurch Councils in particular. We hope our research can help inform the debate. Our sales data is sourced from the most comprehensive source, settlement statements for each sale, extracted by, and provided to us in summary form by Property IQ a division of Quotable Value. Summary results will be published in these regular reports, by way of a back page article, and we also plan to issue a more detailed quarterly summary of new build activity in Christchurch, Wellington and Auckland as a separate report. Detailed analysis of sub-markets can be commissioned as required. RATES STILL LOW Debt levels still look attractive on a historic basis, see ANZ table. Reflecting global risks and domestic lethargy, the Reserve Bank of Australia cut their cash rate this week to 4.5% and the Reserve Bank of New Zealand held the Official Cash Rate at 2.5% last week, suggesting rates are likely to stay low in the short term.
COMMERCIAL INTEREST RATE GUIDE 3 Year Term (Indicative Borrowing Rate) Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11
Source: ANZ Bank

6.64% 6.35% 6.35% 6.35% 6.36% 6.33% 6.49% 6.25% 5.87% 5.91%

NEW ZEALAND KEY ECONOMIC INDICATORS NOVEMBER 2011 Jun-11 (yr rate) GDP Growth Current Account (% of GDP) 1.5% -3.7% Sep-11 (yr rate) CPI Inflation Net Migration Gain (000's) Retail Sales (ex-auto) Unemployment Rate 4.6% 0.6 3.1% 6.6% Oct-11 (yr rate) Tourist Numbers Growth Official Cash Rate 90 Day Bank Bill Rate 10 Year Government Bond Floating Mortgage Rate 3 Year Fixed Housing Rate Consumer Confidence** 19.7% 2.50% 2.8% 4.5% 5.9% 6.8% 112 Jun-10 (yr rate) 1.9% -2.5% Sep-10 (yr rate) 1.5% 13.6 2.7% 6.6% Sep-11 (yr rate) 25.3% 2.50% 2.9% 4.4% 6.0% 6.7% 113 Y-o-Y Change -0.4% -1.3% Y-o-Y Change 3.1% -13.0 0.4% 0.0% M-o-M Change -556 bps 0 bps -11 bps 13 bps -10 bps 14 bps 0% Jun-11 (qtr rate) 0.1% NA Sep-11 (qtr rate) 0.4% -0.8 1.4% 6.6% Oct-10 (yr rate) -1.1% 3.0% 3.2% 5.1% 6.3% 7.1% 114 Mar-11 (qtr rate) 0.9% NA Jun-11 (qtr rate) 1.0% -0.9 1.3% 6.5% Y-o-Y Change 2077 bps -50 bps -42 bps -55 bps -44 bps -26 bps -1% Q-o-Q Change -0.8% NA Q-o-Q Change -0.5% 0.2 0.2% 0.1% 10 Year Average 2.9% 5.5% 5.7% 5.9% 7.4% 8.1% 118 2011F* 1.5% -4.1% 2011F* 2.6% -0.6 5.3% 6.5% 2011F* NA 2.5% 2.7% 5.4% 6.2% NA NA 2012F* 2.2% -6.4% 2012F* 2.2% 7.1 5.4% 6.4% 2012F* NA 3.8% 4.0% 5.8% 7.7% NA NA

Source: NZIER, RBNZ and Colliers International Research * December year forecast ** ANZ Roy Morgan, average is since inception not 10 year average

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NOVEMBER 2011 | RESEARCH REPORT | COLLIERS INTERNATIONAL RESEARCH

OFFICE PROPERTY MARKET

NEW ZEALAND PRIME CBD OFFICE INDICATORS
Prime Rentals (% Change) 12 months to September 11 12 months forecast

Auckland Wellington Christchurch

Prime Capital Values (% Change)

-1.4% -3.0% -1.4% -5.2% -

0.0% 2.5% 0.0% 2.5% -

Auckland Wellington Christchurch

Source: Colliers International Research

It is timely to consider whether the momentum in office market awareness of sustainability and green issues, has slowed as a consequence of difficult economic conditions. Our view would be that while some organisations did indeed put sustainability to one side, it is now beginning to take centre stage again. Air New Zealand has launched its property groups sustainability programme, setting out the steps the airline is taking to improve their environmental performance, and making clear that it expects suppliers and service providers to share its green aspirations. At the same time the number of corporate landlords and tenants supporting the green lease schedules developed in consultation with Bell Gully, is growing, and now includes quite a few significant landlord and tenant organisations as well as industry bodies such as CoreNet and the RICS.
PRIME CBD OFFICE VACANCY*
June 11 June 10 June 12 forecast Majestic Centre 100 Willis Street Wellington City The Earthquake Commission has leased 1000m2 of office space from Kiwi Income Property Trust at 100 Willis Street in Wellington City.

Auckland Wellington

11.9% 2.7%

9.7% 1.7%

9.7% 3.8%

Source: Colliers International Research * Refers to Premium and A Grade office vacancy only

In our forthcoming Workplace Insight Report (November) we highlight growth (or lack of it) in the adoption of green lease principles in Australia, the US, and the UK as well as in New Zealand. The majority of the sale and leasing activity below is in Wellington. Despite concerns over earthquake-strengthening and potential public sector staff cuts, there is still considerable confidence in parts, at least, of the capitals commercial property markets.
A SELECTION OF OFFICE SALES ACTIVITY
Address Location Price Vendor Purchaser Capital Value ($/m2) Yield (%)

132 Vincent Street 133 Molesworth St

Source: Colliers International Research

City, Auckland Thorndon, Wellington

$9,000,000 $14,000,000

DNZ Property Fund AMP Property Portfolio

Private Investor Balanced Investments

1599 1745

Undisclosed Undisclosed

A SELECTION OF OFFICE LEASING ACTIVITY

Address Location NFA (m2) Lessor Lessee

PWC Tower, L16A, 188 Quay Street NEC House, 40 Taranaki Street Majestic Centre, 100 Willis Street
Source: Colliers International Research

City, Auckland Te Aro, Wellington City, Wellington

340 1479 1000

AMP NZ Office Fern Investments Kiwi Income Property Trust

Velocity Trade Brookers Earthquake Commission

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NOVEMBER 2011 | RESEARCH REPORT | COLLIERS INTERNATIONAL RESEARCH

INDUSTRIAL PROPERTY MARKET

NEW ZEALAND PRIME INDUSTRIAL INDICATORS
Prime Rentals (% Change) 12 months to September 11 12 months forecast

Auckland* Wellington** Christchurch***

Prime Capital Values (% Change)

0.0% 0.0% 8.4% 3.2% 0.0% 2.0%

2.0% 0.0% 0.0% 5.0% 0.0% 0.0%

Auckland*
92-98 Harris Road East Tamaki Auckland Direct Property Fund has acquired 92-98 Harris Road in an off market transaction for $12.95 million at an initial yield of 8.45%.

Wellington** Christchurch***
Source: Colliers International Research *Mt Wellington **Seaview ***Hornby/Islington

NZIERs Quarterly Survey of Business Opinion showed a decline in manufacturers confidence in the September quarter. Although optimism has declined from +21% in June to +11% in September 2011, export sales remain positive. The rebuilding of Christchurch has been slow to commence, however expectations among builders and architects are very positive according to the survey.

INDUSTRIAL VACANCY
August 10 August 11 August 12 forecast

Auckland

6.2%
September 10

5.1%
September 11

5.0%
September 12 forecast

Christchurch*

8.9%

4.6%

4.4%

Source: Colliers International Research *Includes Hornby/Islington, Middleton/Sockburn, Sydenham

Our latest Christchurch industrial survey has shown a dramatic dip in vacancy in the year to September 2011. The largest decline was in Sydenham sitting at 8.6%, down from 14.1% from a year ago, while Middleton/Sockburn and Hornby/Islington declined 5.2% and 2.0%. The results highlighted the demand pressures on existing unaffected stock located in the southern and western parts of Christchurch. The full results of our findings along with a detailed update on Wellingtons vacancy survey, will be published in our upcoming New Zealand Industrial market report.
A SELECTION OF INDUSTRIAL PROPERTY SALES ACTIVITY
Address Location Price Vendor Purchaser Capital Value ($/m2) Yield (%)

92-98 Harris Road 3 Broken Hill

Source: Colliers International Research

East Tamaki, Auckland Porirua, Wellington

$12,951,964 $4,300,000

Private Owner Broken Hill Nominees

Direct Property Fund Takakopa Properties

Undisclosed 1345

8.45 9.76

A SELECTION OF INDUSTRIAL PROPERTY LEASING ACTIVITY

Address Location GFA (m/2) Lessor Lessee

Business Parade North 41 Sir William Avenue Uniplas Building, 201 Eastern Hutt Road
Source: Colliers International Research

East Tamaki, Auckland East Tamaki, Auckland Lower Hutt, Wellington

5718 4171 5600

Goodman (NZ) Southbourne Holdings RB and RM Whitmore Family Trust

National Aluminium L F A (NZ) Wellington Regional Council

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RETAIL PROPERTY MARKET

NEW ZEALAND PRIME CBD RETAIL INDICATORS
Prime Rentals (% Change) 12 months to September 11 12 months forecast

Auckland* Wellington** Christchurch***

Prime Capital Values (% Change)

0.5% -1.1% 0.5% -4.0% -

1.0% 0.0% 3.0% -1.0% Dressmart Outlets, Meridian Mall Auckland, Wellington, Christchurch, Dunedin Lend Lease Real Estate Partners New Zealand Fund has acquired Dress-Smart outlets in Auckland, Christchurch and Wellington, and Dunedins Meridian Mall, from Lend Lease for $197 million.

Auckland* Wellington** Christchurch***

Source: Colliers International Research *Queen Street **Lambton Quay ***City Mall

The Rugby World Cup (RWC) has lifted short term tourist arrivals in New Zealand by 26% in September 2011 compared to last year, according to Statistics New Zealand. Over one-third of all arrivals during the month were RWC visitors mainly from Australia, the United Kingdom and France. Unsurprisingly, arrivals from non-participating countries have not experienced any significant changes compared to last year, with China up 600, and Germany down 200. In addition, visitor arrivals from Korea continues to decline, down 1600, since the February earthquake in Christchurch. According to Paymark, which process about 75% of New Zealands electronic transactions, foreign card spending during the RWC (9 September to 24 October) increased 36.5% ($70 million) compared to the same period last year. The largest increases during the weekend of the final was in car rental, up 25% while hospitality increased 11.4%.
CBD RETAIL VACANCY
June 10 June 11 June 12 forecast

Auckland Wellington
Source: Colliers International Research

3.0% 3.1%

5.4% 5.7%

4.9% 4.6%

In the latest Statistics New Zealands release, the consumer price index (CPI) rose 0.4% in the September 2011 quarter, reflecting the lowest increase in inflation in five quarters. The results came as a surprise to some economist whose consensus was a forecast of 0.7% increase this quarter. The change was attributed to higher prices for vegetables (up 18%), and local body rates (up 4.1%), offset by a decline in petrol prices (down 3.3%).
A SELECTION OF RETAIL PROPERTY SALES ACTIVITY
Address Location Price Vendor Purchaser Capital Value ($/m2) Yield (%)

Dressmart Outlets, Meridian Mall

Auckland, Wellington, Christchurch, Dunedin Manukau, Auckland

$197,000,000

Lend Lease

Lend Lease Real Estate Partners New Zealand Fund Private Investor

Undisclosed

Undisclosed

898A Great South Road

Source: Colliers International Research

$1,935,000

Private Owner

2737

8.00

A SELECTION OF RETAIL PROPERTY LEASING ACTIVITY

Address Location NFA (m/2) Lessor Lessee

Unit B, 14-16 Link Drive Unit 1, 186 Kapiti Road Tower Building, 50-64 Customhouse Quay
Source: Colliers International Research

Wairau Park, Auckland Paraparaumu, Wellington City, Wellington

335 355 300

Private Owner Gaglen Investment Trust Menkaure

Private Lessee Private Lessee Clair Patterson

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NOVEMBER 2011 | RESEARCH REPORT | COLLIERS INTERNATIONAL RESEARCH

RESIDENTIAL DEVELOPMENT ACTIVITY

Calculating the volume of new house and apartment sales is quite a tricky business. We have developed a methodology to estimate the number of new house sales and the corresponding house size, section size, and pricing data with the help of Property IQ, the data provision arm of Quotable Value. Our data extends back five years, so already provides a useful time series. We intend to continue to analyse these historic data, and new data as they appear, to assist our residential development, investment, and public sector clients in analysing issues around public sentiment and acceptance of house typologies, price points, and density. Typically Auckland, Wellington and Canterbury regions account for around half of the total new house consents in New Zealand. Of that around 30% of the new houses consented in the year to June 2010 were sold in the twelve months following.

Residential development activity index compares year to June 2011 new dwelling sales to year to June 2010 new dwelling sales

NUMBER OF NEW DWELLING SALES

Auckland Region
2200 550 500 450

Wellington Region

2000
1800 1600

400
350 1400 1200 300 250

1000 2006 2007 2008 2009 2010 2011

200 2006 2007 2008 2009 2010 2011

NEW DWELLING AS PROPORTION OF ALL DWELLING SALES

Canterbury Region
1500 1400

Auckland Region
12.0%
10.0% 8.0%

Wellington Region

Canterbury Region

1300
1200

1100
1000

6.0%
4.0% 2.0%

900
800

700
600

500 2006 2007 2008 2009 2010 2011

0.0% 2006 2007 2008 2009 2010 2011

Source: Property IQ & Colliers International Research

Colliers International Research and Consulting Offers a Full Range of Property Solutions:
Property Investment Strategies Demand Strategies Transaction Advice Lease Structure Advice Market Analysis and Forecasts Feasibility Analysis Project Marketing Representation

Whilst all care has been taken to provide reasonably accurate information within this report, Colliers International cannot guarantee the validity of all data and information utilised in preparing this research. Accordingly Colliers International New Zealand Ltd, do not make any representations of warranty, expressed or implied, as to the accuracy of completeness of the content contained herein and no legal liability is to be assumed or implied with respect thereto.

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