Blowing Bubbles: Hamilton's surge, then settle story

Hamilton's commercial property values are benefiting from Auckland's booming real estate market.

While the residential market is flattening in the Waikato city after record spikes, commercial property values are on the way up.

"Hamilton has been so undervalued for such a long time, we are only now starting to get the recognition," says Mike Neale, NAI Harcourts commercial sales and leasing managing director.

Furthermore, businesses and people are moving to Hamilton en masse, he says.

The reason Hamilton commercial property has become so attractive is they generate better yield, or returns on investment.

"In Auckland, commercial properties owners are lucky if they get 3 or 4 per cent yield. In Hamilton, they are looking at a comfortable 6 per cent," Neale says.

Neale believes Hamilton returns are more consistent, too.

Auckland has peaks and troughs. It's peaking at the moment, but who knows what will happen in six months, he says.   Neale thinks business owners are also looking at ways to retain employees.

"Businesses are a lot more aware of the environment they want for their workers. If you can have high-quality refurbished office space in Hamilton for $240 a square metre, whereas in Auckland you are going to be at $350 or $400, it's actually a cost-effective place to have a business."

Having a nice work environment helps retain staff; however, there are other factors that contribute to a stable workforce.

"We had an Auckland business owner call up the other day looking at moving down because he wanted to be based in a place where his employees could afford to buy a house."

In Hamilton, the median house value is about $470,000; in Auckland, it is about $1 million, Neale says.

There is no particular part of Hamilton that is commercially more attractive than another, he says.

Commercial property is being sought everywhere.

"Look at the office retail and industrial surveys and we are nearing historic lows [in rentable spaces] right across the board. That's a good sign.

"Hamilton is a much safer option."

Hamilton's position in the "golden triangle" of Auckland/Hamilton/Tauranga is part of what is driving the values up, says Kelvyn Eglinton, Hamilton City Council city growth general manager.

The three cities contain about half of New Zealand's population and about half of New Zealand's jobs.

Just as the country's two largest ports, Auckland and Tauranga, occupy strategic positions, Hamilton plays a vital role in providing inland ports and freight logistics, Eglinton says.  He points to companies like Mainfreight, which has been able to base itself in Te Rapa at a much cheaper price than it would have been able to in Auckland.

Warehouses should be looking at moving away from inner-city Auckland suburbs like Penrose to free up space for residential properties and setting up in Hamilton, where land is cheaper, he says.

However, that isn't a signal for Hamilton to place itself in direct competition with either Auckland or Tauranga.

"This is a relatively new way of thinking, but we should all be working together. We should play to each of our strengths," Eglinton says.

He believed Hamilton's strengths were in research and development, manufacturing and construction, and agriculture.