The Merricks Capital investment team are assessing the deep pipeline of commercial real estate investment opportunities in New South Wales, Queensland, and New Zealand.
Sydney’s CBD and fringe suburbs remain the focus for the commercial office sector, where there is increased development activity, in line with the demand for high quality office space. This is akin to what we have seen in Melbourne over the past 18 months, with investments such as 510 Church Street and 627 Chapel Street.
This shift from Melbourne to Sydney can be attributed to the rotation of general development activity slowing in Melbourne and increasing in Sydney and south east Queensland and New Zealand. Activity in Sydney non-bank lending has increased with the recent lockdowns resulting in slower turnaround times from banks.
In residential development, the South East Queensland market has experienced positive interstate migration driven by Covid-19 lockdowns in Sydney and Melbourne. As a result of no major lockdown this market has experienced more housing transactions relative to Sydney and Melbourne. Given the higher volumes the 20% annual increase in house prices and 10% annual increase in apartment prices in the last year is reinforcing that there is strong demand for housing in this market.
The Partners Fund has recently entered due diligence for two investments in this space. The first, a residual stock loan in inner city Brisbane and the second, a large construction loan on the Gold Coast.
We continue to take an opportunistic approach to investments in New Zealand. The commercial real estate market is moving quickly, where prices have risen quicker than in Australia. While commercial real estate opportunities in New Zealand remain steady, we are seeing an increase in residential development and industrial across the whole country.
In agriculture, there is currently a mix of high commodity prices, low supply levels and increased demand for land which has led to a steady increase in agricultural land prices. In the current portfolio, over 90% of underlying security is land. As the value of our security increases in line with property value growth, the Loan to Value Ratio, and subsequently, portfolio risk declines.
Rising land values have also contributed to a number of successful loan exits. This proves the strategy of the underlying liquidity of assets in the portfolio. The forecast continued growth in land value is central to our continued confidence in investing in agriculture.
