Oversupply of properties lowers value

Queenstown has an oversupply of apartments, tourist accommodation and office space, which is forcing down some retail and office rentals, according to a national valuation company.

Chris Stanley, of Telfer Young's Canterbury branch, said in a report released yesterday the property market in Queenstown was stabilising, but a substantial increase in development of the resort's main centre had created a significant increase in supply of retail and office accommodation.

"As a result, office rentals have fallen as more office space has come on to the market at a time of limited demand."

However, Real Estate Institute of New Zealand Queenstown spokesman Adrian Snow, while agreeing with that finding, said there was a shortage in residential apartments, with managed apartments - for example those at The Rees, the Oaks, and Peppers - being in a state of oversupply for the past two or three years.

"There are about 300 managed apartments for sale at any one time, but it's specifically a managed apartment phenomenon, those with long-term leases on the title.

"[In] residential apartments there is not an oversupply. I could even argue there's a shortage."

Mr Stanley said Queenstown's new developments had added about 17,000sq m to the total retail and office stock.

Retail rents had also "softened", however not to the extent of the office market, he said.

"New retail leasings in Queenstown have achieved net rental rates ranging from $780 per sq m to $1225 per sq m."

Investment yields for commercial property had increased by about 1%, but had eased from the levels achieved at the market peak in 2007.

Investor demand for good quality industrial property remained strong, Mr Stanley said.

Mr Snow agreed the oversupply in the office space market was attributed to new developments coming on line and a "recessive economy".

"Yes, there is a reasonable amount of office space available in older buildings and on the upper levels. That's a result of new properties becoming available, like Ngai Tahu's Post Office Precinct, Church St, Outside Sports and of course Remarkables Park. Really, it's certainly taken the pressure away from the [town] centre.

"There is an oversupply in that particular segment of the market ... but the rentals are coming down. That second-level office-type space three years ago would have been leasing at $350 a square metre. Now, it's about $200 to $250 a square metre.

"It's not just a function of new properties becoming available, it's a function of a recessive economy. Long term, once the economy starts to improve ... we'll see office space build up again as businesses expand, take on more staff and come to town again.

"I don't see it as being anything abnormal. You go to any urban location in New Zealand and you'll observe exactly the same thing," Mr Snow said.

Mr Stanley said overall the resort's property market was stabilising after "sharp falls" from the median sales price highs of autumn 2008.

"The Queenstown property market is very dynamic when compared to the main metropolitan areas of New Zealand."

Meanwhile, the apartment market had gone through a "price correction", along with a "significant reduction" in sales volumes, although there had been several mortgagee sales.

"Sales volumes peaked in the last six months of 2005 at 110 sales with sales in the last six months of 2009 totalling 25."

In the residential market sales volumes were still at "low levels", Mr Stanley said.

The median sale price for houses peaked at $594,000 in 2008, before falling and stabilising late last year at $518,000.

The market for higher valued properties was "subdued".