Property Returns Maintain High Levels

Returns from investing in New Zealand commercial property have maintained the high levels reached over the last few quarters, with almost all sectors showing little movement from returns in June 2005, but significant increases on the returns of 12 months ago, according to Property Council National Director Connal Townsend.

The latest figures from the Property Council of New Zealand’s Investment Performance Index survey show commercial property investors receiving an average return of 18.03% in the year to September 2005, well above the 14.88% investors earned on average for the previous year.

“While income returns have remained steady at 9.29%, it is the strong increase in capital value that has driven the total return growth over the last few quarters,” says Mr Townsend. “This is illustrated by the capital returns for each sector, ranging from 4.99% for New Zealand Bulk Retail, to 13.08% for Wellington CBD Office,” he says.Property Council Research chair, Alan McMahon, says these capital returns, measuring the increase in capital value, are the highest ever recorded in one year. “In recent times the index has been recording excellent, consistent returns. It demonstrates that commercial property has been less volatile than bonds in New Zealand over the last few years, while delivering far superior returns. To maintain this trend, both sides of the demand equation need to remain positive. There is little doubt that investment demand will continue, and indicators are positive too for occupational demand” he says. Wellington CBD Office was again the standout performer this quarter, with a total return of 24.60% (up from 15.12% in September 2004). This was driven by a significant increase in capital return over the last 12 months, from 4.10% in September 2004 to 13.08% in September 2005. The Auckland CBD Office sector continued its recent improvement to record a total return of 15.90%, up from 12.69% in September 2004.

The Industrial sector maintained the high returns achieved over the last six months with NZ Industrial recording a total return of 21.84% (up from 14.14% in September 2004), and Auckland Industrial returning 21.33% (also up from 14.14% in September 2004).

Of the four retail categories, only the ‘Other Retail’ category (combined small shopping centres, small bulk retail outlets and strip retail) experienced an increase in total returns over the last 12 months, returning 20.31% (up from 16.46% in September 2004).

The Bulk Retail category experienced very little movement, returning 14.11% - down only slightly from 14.22% in September 2004. Of the other categories, in the year to September 2005 Shopping Centres returned 14.57% and the combined retail category returned 14.83%, compared with 18.74% and 17.83% respectively in September 2004.

The Investment Performance Index is New Zealand’s leading benchmark of commercial property investment returns. 18 leading property owners and managers provide information. The figures are based on analysis of 286 properties, valued in excess of $5.38 billion and covering over 2.35 million square metres of net lettable area.