The Full Subscription of Holmes Road Industrial
Jasper’s investment platform went live in November 2019, and it was vital to launch the service with a property that had all the hallmarks of a strong investment opportunity for investors. After significant due diligence and extensive negotiations, the purchase of Holmes Road Industrial was agreed.
Holmes Road Industrial displayed strong property fundamentals that made it an attractive first offering. It is 100% occupied, extensively refurbished both internally and externally and was secured outside of a marketed process. The property benefits from a strong stable cash flow and fixed rent growth built into the leases, which will continue to generate a healthy annual return for Jasper’s investors. The total equity in Holmes Road Industrial was subscribed in under 48 hours which demonstrates an appetite for both attractive yielding assets with strong fundamentals and for a more accessible way to invest.
Why Jasper Chose an Industrial Asset
The industrial asset class is considered to be one of the three major pillars of commercial real estate, along with office and retail, and is currently performing the strongest. The availability of industrial space continues to shrink while occupier demand is at record levels. The Auckland Industrial sector continues to outperform other asset classes, with the momentum for the next 12 months expected to continue unabated. Increasing land values, construction cost inflation and constraints on commercial lending have limited further supply to an already tightly held market.
In addition, a proliferation of E-commerce, internet technology companies, and manufacturing means that demand for industrial investments has surged over the past few years. Colliers Research highlights that “the ‘Golden Triangle’ between Auckland, Hamilton and Tauranga will continue to rise as a popular occupier, owner-occupier and investor destination. The interconnection of population, ports, and infrastructure is a strong driver for the [industrial] sector”.
Supply continues to be constrained, resulting in a compression of yields. This, combined with upward pressure on rents, has seen the total return on industrial properties remain at double-digit levels. Vacancy rates across Auckland’s leading industrial precincts have also fallen to historically low levels as demand for space has outpaced any new development.
Holmes Road Industrial is zoned as Light Industry under the Auckland Unitary Plan. There is an opportunity in the future to achieve residential rezoning to mixed housing suburban or urban zones. A repositioning of the site would potentially present a significant upside to investors above the base case.
What Made Holmes Road Industrial so Attractive to Investors
The Auckland Industrial market is tightly held. Strong fundamentals have been compressing yields to record lows (a key driver of capital growth over that last decade). Holmes Road Industrial presented a unique opportunity for investors to purchase stable cash flows at an attractive yield with the opportunity for further yield compression in the future.
The target average cash dividend of 7% over the hold period was a key driver for investor demand. A sought after asset class supports ongoing capital growth and the opportunity targeted a total return of approximately 11% per annum over the first 5 years.
A cornerstone feature of this asset was secure rental growth. Fixed annual rent increases for each tenancy will underpin the capital values and ensure rents keep pace with the market. This inevitably leads to robust long term returns.
Jasper’s Plans for Future Investment Opportunities
Holmes Road Industrial was Jasper’s first investment offer. Since closing the first offer, the investment team has been diligently working to bring additional offers to investors. The team is currently looking at securing off-market properties in both the office and industrial sectors. The properties will vary in their risk/return profiles and investment strategies. The team has been carefully analysing a number of opportunities and aims to offer only the highest quality investments. Jasper’s next offer is expected to go live by the end of Q1 2020.
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CIO & Director, Jasper
Published 3 February 2020