Aussie investors opt for Kiwi industry over Australia

Friday, 31 January 2025

Industry players say foreign and local investors are battling to snap up industrial land and businesses around Aotearoa while prices are low. (File photo)

Local and international investors are seeking to snap up deals in New Zealand’s soft property market, and increasingly diversifying their portfolios by shifting their focus from commercial property in urban areas to industrial land and assets such as large-scale warehousing.

It’s a “fight” for international investors that New Zealand appears to be winning at present, with soft pricing and favourable legislative settings, industry figures say.

“I'm just seeing everyone interested in New Zealand at the moment, and they're generally experienced investors who have three or four properties on the eastern seaboard of Australia,” said Scott O’Neill, chief executive of mortgage and insurance broker Rethink Group.

“They're thinking, ‘Do I invest in Western Australia or Perth, or do I go to New Zealand?’”

O’Neill said high-end international clients would normally default to investing in Australia “because it's a bigger market, but that's not happening at the moment”.

“There's a fight for overseas investors and there are not many Government restrictions for foreign investment [in New Zealand]. As long as it's commercial, you can invest in it.”

Rethink Group chief executive Scott O'Neill says the Australian company is seeing heavy interest from overseas investors in the NZ property market.

Those investors include Kiwi expats who have been out of the New Zealand market since the pandemic, as well as institutional investors out of Singapore and Hong Kong, who are “piling up” to make the most of dropping property prices in New Zealand.

“There have been some pretty big price falls, between 20% and 30%, since the peaks in 2021.”

Government announcements on deregulating foreign investment, easing lending criteria, and a shift away from mining-based investments across the ditch were all major pulls for Aussie investors, he said.

“The financing is starting to get better, because [New Zealand’s] commercial interest rates were up heading towards 10-12% only a year ago. Now I'm seeing them as low as 7%.

“Australia is a lot higher value without as much growth expected because our interest rates aren't dropping as fast as New Zealand’s. Investors [in Australia] are seeing New Zealand as a pretty good opportunity.

“High net worth individuals are looking for the best possible time to enter a market, and that's generally before interest rates reach their peak – the best time would have been six months ago before [interest] rates dropped,” O’Neill said.

But he said the Reserve Bank Te Pūtea Matua’s potential 0.5% OCR [official cash rate] cut next month would create the right conditions for better cashflow. Property investment firm JLL’s industrial market report for quarter three 2024 predicted that growth in industrial property was likely to slow this year but O’Neill was optimistic that there was room for “more extreme growth” from falling interest rates.

As far as what they are buying goes, international investors were looking to make the most of dropping property prices and retain their cashflow.

ABC Business Sales managing director Chris Small says Kiwi property developers are switching to industrial business investments which is short supply.

“There's a big push towards increasing rents in basically all asset classes at the moment, which is positive.” Supermarkets, warehousing and more remote properties were popular, and helping investors diversify their portfolios.

O’Neill said office and industrial retail land property could expect to bring investors up to 10% higher returns this year, based on JLL research. “It's a pretty close fight for first between office and retail.”

But that meant they were in hotter demand than consumer retail, which O’Neill described as “weak”.

ABC Business Sales managing director Chris Small said “any type of distribution business” was in hot demand but his main concern was supply.

“We could sell 10 of those businesses tomorrow, but we probably only have three or four on sale at any given time. But we could sell twice as many as that,” Small said.

“Kiwis love import distribution. Businesses that bring in products from overseas and supply either supermarkets, Mitre 10 or other big box stores are very popular when they come to market.

“We don't have enough product. We've got buyers, we know people want it but some of those business owners just aren't ready to sell,” he said.

Actual businesses on sale dropped 6% in the last year with more business owners holding on until their valuations improve. But ABC still saw a 35% uptick in signed agreements for business purchases between December 2023 and December 2024, with actual sales and transactions up 15% in that period.

Part of that was driven by heavy migrant numbers into New Zealand and “corporate refugees” looking to make up for lost income, but Small said Kiwi property developers were now stepping into small business. This year, Small expects business sales to rise another 5-10% in 2025 as more locals lose their jobs.

Aside from industrial business, Small said online retail, childcare and aged care businesses were in demand from local investors.

“Investors looking to buy businesses believe it will provide a better return on capital compared to property, which hasn’t done well in the last two to three years.”