Auckland apartment pre-sales at 10-year low

Sunday, 8 October 2023

Developer Ockham Residential has put plans for a huge inner-city fringe block on hold, and the move highlights issues around new apartment supply.

The Feynman, a seven-level, 165-unit complex on Great North Rd in Auckland’s Grey Lynn, was launched in March last year.

It was to have two residents’ lounges, a deck, gardens, and a pool on the roof, with views over Grey Lynn Park, out to the city and the Waitemata.

Unit prices started at $725,000, but the average price was $1.18 million, and the three penthouse apartments were priced at $3.5m.

If the building had progressed, it would be the biggest apartment project by gross floor area outside the city centre.

But work on the Feynman development has been put on hold.

Ockham Residential chief executive William Deihl says there were 14 pre-sales, which was not sufficient to get work underway.

When the project was launched, the company knew the market was flattening, because there had been slowing sales at its other developments since October 2021, he says.

“But the Feynman was a stunning concept, several years in the devising, and we were hopeful we’d secure enough sales to allow it to proceed.”

That has not happened, and buyers have had deposits refunded with interest, and will be given first right of refusal before the project goes back to market, he says.

“We’re disappointed we couldn’t get it off the ground first time, and hate disappointing our buyers. But we’re confident the project will go ahead when the time is right.”

Ockham’s situation is a sign of the times. Difficulties getting finance, rising interest rates and construction costs, and falling house prices over the last year mean apartment pre-sales have fallen to global financial crisis-era (GFC) lows.

Commercial real estate company CBRE has quarterly pre-sale figures across the Auckland region going back 10 years.

They show there were just 41 pre-sales in the first quarter of this year. That figure is a 10-year low, but pre-sales did increase slightly to 55 in the second quarter.

Both figures are well below the 400-plus recorded quarterly during the boom in 2021. And they are far from the peak of the apartment market, which was in 2016 when there were over 3000 pre-sales.

CBRE director of research Zoltan Moricz says the quarterly increase in pre-sales suggests the market has bottomed out.

There was also a small uptick in development launches in the most recent quarter, with 16, which made 25 since February, he says.

“But that is not entirely representative of the market as many launches are for Kāinga Ora or build-to-rent developments, and they are not available for pre-sale.

“Other than that, the launches tend to be of smaller, boutique, high-end stock. That part of the market is less price sensitive, and not as constrained by higher interest rates.”

Project abandonments decreased to five in the second quarter, from nine in the previous quarter, but the unsold stock to pre-sold stock gap has widened.

CBRE associate director of research Tamba Carleton has said the pre-sale drop is not entirely reflective of lower demand, because lower supply impacts pre-sale volume.

Developers use deposits from pre-sales as one of their funding mechanisms, and when the market is quiet they are less likely to put off-the-plan projects, and units, up for sale.

Currently, developers are holding back because the number of buyers is down, and the market environment is challenging, although construction costs are stabilising.

That means there are not many new projects coming on to the market, and the pipeline of supply is decreasing.

Colliers director of residential project marketing, Jeff Davidson, says they are tracking 50 developments under construction, with 34 projected to finish by the middle of 2024.

These developments will produce about 5206 individual units, and there are a further 63 consented developments, he says.

Some of the projects due for completion by year’s end include McLeod Green in Te Atatu, Logan Apartments in Epsom, Kupenga in Point England, and The Onehunga Mall Club in Onehunga.

Traditionally, most apartment buildings went up in the CBD, but that is changing.

Apartment Specialists director Andrew Murray says Seascape is the only complex under construction in the CBD.

Those apartments are not what the average Kiwi can afford, so there are zero new apartments in line for the CBD, he says.

“Most of the apartments being built now are already sold, so there is limited new supply coming on to the market generally.”

With strong immigration leading to increased rental demand at the same time, the situation is similar to the post-GFC years, he says. Back then, apartment rents and prices skyrocketed.

Bayleys apartment expert Suzie Wigglesworth says the past 18 months have been tough in the new build apartment arena, but it is part of the cycle.

High interest rates and tight credit conditions are a big reason for the quieter market, and developers, who have to achieve pre-sales, have their backs against the wall, she says.

“Unfortunately, with limited new supply coming through, the market will end up back where it started in terms of the housing shortage.

“There was an uptick in large developments in 2021, and that is what we need to eat into the shortage.”

Smaller, boutique blocks or townhouse developments involve lower costs, fewer risks, shorter time-frames and fewer pre-sales, so developers are likely to opt for them instead, she says.

“But there are still people transacting in this market. For example, the Elevation complex in Northcote, which has a Kiwibuild component, launched a few weeks ago, and is selling well.”

The market has been showing signs of life in recent months, although it is not helpful interest rates have picked up again, Wigglesworth says.

“There has been a positive uplift, but the market is not settled yet with people waiting to see what happens with interest rates and the election.”

Those waiting include buyers and developers. Love and Co managing director John Love recently completed the conversion of an old Auckland Council building in the CBD into The Cab apartments.

He says all but 15 apartments in the 18-storey block have sold, residents have moved in, and he is confident the remaining units will sell as the location, and the lifestyle, is “highly attractive”.

The Cab is the first building in Love’s Civic Quarter project. He has three other development sites with foundations and parking completed, but he is not progressing them until “the world sorts itself out”.

Until pre-sales get back off the ground it is a waiting game, but it means there is no new supply, he says.

“So it is like the last cycle, after the GFC no-one was building apartments, and there was huge pent-up demand.

“So when our Hopetoun and Hereford blocks came onto the market they sold like hotcakes because there was nothing else out there.”

Ockham’s Deihl says it looks like the market has hit bottom, but the apartment sector is always the first to feel the hurt when the market drops and is at the later end when it comes back.

“Looking at current rental supply in Auckland, we believe the demand is already there, we just need a few things to shift in the economy, and we will be back into growth mode.

“We’re ready when that comes, and enquiry levels over the past couple of weeks have been the best all year.”

Despite The Feynman being put on hold, this year has been Ockham’s biggest. Once Manaaki in Onehunga and The Greenhouse in Ponsonby are finished, it will have bought 481 apartments in five developments to market.

That is double its next best year, when it completed 240 apartments, he says.

“Our next cab off the ranks will be Toi on the old Unitec site in Pt Chevalier, which we are aiming to get underway this side of Christmas.”