CBD office returns soar

“While income returns have dropped slightly to 8.95%, it is the continued strong increase in capital value in the CBD office sectors that has helped maintain the high overall total return over the last twelve months,” says Property Council national director Connal Townsend. “This is illustrated by the capital returns for each sector, ranging from 2.07% for NZ Bulk Retail to 13.15% for NZ CBD Office,” he says.

Property Council research chair, Alan McMahon, says “Diminishing income returns are an inevitable consequence of increasing capital values, a result of firming cap rates. The total return numbers are the key, and these remain robust. CBD office assets performed better than non-CBD offices, perhaps a sign that a proper value differentiation between prime and secondary assets is being restored.”

NZ CBD Office took over the top spot this quarter, reaching a new all time high total return of 23.37% (up from 18.45% in June 2005). This was driven by a significant increase in capital return over the last 12 months, from 8.15% in June 2005 to 13.15% in June 2006.

The Auckland CBD Office sector also continued its recent rapid improvement to record a total return of 23.36%, up from 15.34% in June 2005. The Wellington CBD Office market maintained the high returns seen over the last 18 months, dipping only slightly to a total return of 22.06% (down from 24.52% in June 2005). The Auckland Non CBD Office category experienced a significant a decrease over the last twelve months – recording a total return of 12.85% (down from 17.76% in June 2005).

The two industrial sectors could not maintain the record returns seen over the last 12 months, with figures for both sectors dropping significantly. NZ Industrial experienced a total return of 15.27% (down from 22.73% in June 2005), with Auckland Industrial returning 15.13% (down from 22.41% in June 2005).

Three of the four retail categories experienced a decrease in total returns over the last 12 months, with only NZ Shopping Centres recording an increase. The shopping centre category recorded a total return of 16.20% in June 2006, up from 15.15% in June 2005. The Bulk Retail category returned 11.15%, down from 14.49% in June 2005. The ‘Other Retail’ sector (combined small shopping centres, small bulk retail outlets and strip retail) returned 13.04%, down from the total return of 20.55% experienced in June 2005. The combined retail category returned 15.07%, down slightly from 15.35% in June 2005.

Seventeen property owners and managers provide information to the Investment Performance Index. The figures are based on analysis of 263 properties.