Some investment advice from Bob Jones

Bob Jones gives some essential investment advice for those looking to invest in commercial property in provincial towns.

Provincial towns world-wide are in steady decline. New Zealand is no exception. There are good reasons for that and they won’t change. A foremost one is tertiary education, now being enjoyed by more than 50% of our kids and rising. Take a student heading to Victoria University from say Hawera and living in the capital for 4 years, completing a degree. Even if pursuing a conventional career such as accounting, law or medicine, never in a million years will he or she then return to Hawera for reasons I hardly need to spell out.

The consequence of this is evident in our provincial towns today where you will now see the same faces portrayed 500 years ago by Bruegel in Flanders. Friendly coves to be sure but don’t expect scintillating discussion. So too in other western countries.

There’s another fail-safe test. If you can spot pretty girls over 20 or young blokes in suits in their late 20s to early 30s in a town then its current prospects remain hopeful. Otherwise, both categories have fled to the big cities. As a keen student of such matters, only Dunedin gets a tick, that is if one categorises it as a provincial city. Try finding a pretty girl over 20 or a young bloke in a suit in say Wanganui or Timaru and you will look in vain.

I’m sure there will be howls of outrage from Social Justice Bullies over those comments.

So, given the current negative trends, it’s not great advice to look to the provinces for commercial investment properties. You may ask what of a hot growth city such as Tauranga? But to buy what? Most offerings will be retail units? Again, taking a proper investment long view, buying retail isn’t smart. Currently, 10% of all retail sales are via the internet and that figure will continue to grow. That’s why the smart money is now exiting shopping centres while they still maintain a viable appearance.

A book that Bob Jones wrote long ago was about this precise problem. Back then his preferred avenue was industrial becuse tenants tend to fix issues for themselves. Retailers in small towns think they are the next Harrods and act that way, bringing annoyance to your passive investment.

Suburban shopping centres are also devastating High streets. In 1980 I was of the view that the best commercial property location growth-wise in New Zealand, was Hamilton’s main thoroughfare, Victoria Street. Now it’s a ghost town of empty shops, thanks to shopping centres.

Drive around any provincial town and aside from its prime centre it’s full of empty shops, their owners, judging by the buildings’ dilapidated state, having long since abandoned hope of leasing them. One would be crazy to buy office space in small towns and only basic industrial units in prosperous cities such as Tauranga or Hamilton might hold their value. But industrial rents world-wide have been almost static for the past 15 years which hardly reflects great investing.

So what do you do?

So what should the mum and dad commercial property seekers do? I watch them flood into terrible office building propositions offered by syndicates, lured by the fool’s gold of leases. You can be assured if the buildings were worth buying then my company for starters would have bought them as it’s easier to sell them to a single quick cash buyer than a highly conditional syndicate purchaser.

All of this reflects a unique thing about our country and that is the public interest in commercial property investing. You won’t find that anywhere else in the world. Large American bookshelves will stock 50 or more books on property investment, but always solely about residential property.

In our rapidly changing world, nothing is very certain anymore and never more so than with commercial property. The failure rate in this activity and especially with developers is unmatched outside of restaurants. In short, it isn’t a field for amateurs.

What dear Bob is saying is that all the best properties to invest in will be already snapped up by people like him…leaving dogs. Buyer beware. I’d listen to Bob Jones any day over some flash harry advertising on NewstalkZB for an investment of just $1000 down and you could own xyz…

 

-NBR

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  • JLS

    Yes, as deliciously controversial as he is, he is also very astute and someone whose opinion I pay close attention to.

  • Jafarma

    A couple of months ago I came across someone wanting to invest in a syndicated Tauranga building. I went around the central 4 blocks of the city downtown and counted 27 vacant retail spaces. 27! certainly underpins Bob’s comments. Despite passing on my comments I don’t even think this person came to Tauranga to look for themselves. Good luck with that.

  • Aucky

    As always Sir Bob is worth listening to. I have never pro-actively invested in property other than scoop an occasional big capital gain on our home and only invest in shares of businesses that I have a deep understanding of. Stick to your knitting is my motto.

  • jonno1

    Spot on. Some close friends and I have pooled funds over the years to invest in industrial property or office blocks of a reasonable size (but not at BJ’s level!), but as he says the yields have dropped so we’ve largely divested. Avoid small scale at all costs! The tenants may be genuine but eventually will struggle.

    • biscuit barrel

      It isnt helped by the banks not allowing you to ‘re-gear’ the loan or use as collateral on another loan like they do with residential property.

  • Ruahine

    I just love the analogy of the pretty girls. He is right of course. No girls, no families no future.

  • JEL51

    Of course Bob is right but I take issue with the put-down. Who on earth would he expect to have the place, let alone the time out here in rural New Zealand , to sit & ‘scintillate’ with?

  • Shalice

    What a great article – I was just thinking about whether to go commercial property! Looks like that’s a no, thanks WO!

  • Jayar

    He’s quite right. I regularly visit a small Northland town where in days gone by the main street would be alive with young people employed in the town. Now it is almost deserted – the only sign of life are customers going to The Warehouse.

  • Dave

    It’s not only in the smaller NZ towns, the same is true in Australia, and probably the world over.

    In the regional city we lived in in Nth Qld, three years on, 3 out of the 4 retail premises we looked at are empty, as are most of the industrial units. The city centre is littered with shops and offices as the tenants have moved onto malls and shopping centres.

    Then the boom and doom towns. Approx 15 to 20 years ago a friend moved to Blackwater for an upcoming boom and to work on the preparation for a coal mine, he immediately purchased a large home for almost nothing and started renovating. He managed to purchase another two homes, eventually moved out of town and was getting over $1000 a week for each of them, yet would have paid for each of them in under two years rent. He went on to own five homes there, and refused to sell, when at the peak he could have achieved between $750k to a million each, yet his hinital investment was well under a mill. He got caught, the mine announced it was closing and he still has 4 of the five properties, and they are almost worthless as most homes are for sale, or being held of the hope of the next boom, if ever!

    Despite this he did well, his rent alone was probably 1.5 times his total investment, and the one he sold was at almost 4 times cost.

    Thing is, his lifestyle went from mince and sausages to Wagyu and international travel.

  • goodwitheu

    Wairarapa: Masterton attracting some decent tech and professional SMEs here and building new in or around the CBD… Great to see. Manuka companies going gangbusters. Business people I know feeling quite chuffed. Greytown also doing well. Carterton, Featherston pretty blah… except for James Cameron setting up some pretty fancy agri. House prices outperforming other provincials in all towns, and lots of new builds. People from Wellington and Auck are moving here visibly and bringing jobs with them. Speak for yourself Bob!

  • Disinfectant

    Went to Invercargill recently for the first time in about 30 years.

    The CBD was full of empty shops. It was a lot different to the late 70’s.

    But even Bob is now scratching his head in respect to future investment.

  • It’s a shame that modern life has favoured cities becoming larger at the expense of smaller provincial towns. It would be better to see all communities thriving and developing, providing quality lifestyles for their residents. This is a area where central government could achieve something positive, by providing incentives such as 5 year company tax holidays for businesses to move out from the larger cities. People will go where they can find both employment and housing. The flow on effect helps the community to develop and prosper.

  • Cadwallader

    He’s right. I live in one of the largest provincial cities and there’s a portion of the commercial sector which is now full of low market Asian restaurants where once there was flourishing retail stores. Overall though I think provincial economies are doing well. Also, I think of some of the smaller towns which have re-invented themselves: Otaki as a destination for factory outlet stores has a vibrant retail strip and has even acquired a set of traffic lights in recent times, Oamaru has become a tourist destination largely through being itself, Ashburton is riding on dairy, Martinborough on wine and Wellington commuters. How these activities translate into good property investments remains to be seen. All things change and at present we are seeing a flight from Auckland to some provincial centres. What next?

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