Property returns reach new all time high

“It is the continued strong increase in capital value 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 2.03% for bulk retail to 13.58% for CBD office,” he says.

Property Council research chair, Alan McMahon, says, “Every category in the index handsomely outperformed the NZX All Ordinaries and Bonds in the same period. Income returns remained steady, generally in a range of 8% to 9% pa, which even without a capital gain contribution compares well with other investments in the market. We are seeing a slowing of capital gain in some categories, notably industrial, non-CBD office and bulk retail, but even in these markets there is a substantial excess of investment demand over supply, which will tend to support further capital gain. We expect to see a continuation of these strong trends for some time yet”.

CBD office continued in the top spot this quarter, reaching a new all time high total return of 23.49% (up from 18.85% in September 2005). This was driven by a significant increase in capital return over the last 12 months, from 8.51% in September 005 to 13.58% in September 2006. The Auckland CBD office sector also continued its recent rapid improvement to record a total return of 23.31%, up from 15.90% in September 2005. The Wellington CBD office market maintained the high returns seen over the last 18 months, dropping only slightly to a total return of 22.54% (down from 24.60% in September 2005). The Auckland Non CBD Office category experienced a significant decrease over the last twelve months – recording a total return of 12.22% (down from 18.64% in September 2005).

The two industrial sectors could not maintain the record returns seen over the last 12 months, with figures for both sectors continuing the decreasing trend of the last few quarters. Industrial experienced a total return of 15.01% (down from 21.84% in September 2005), with Auckland industrial returning 15.10% (down from 21.33% in September 2005).

The other retail and bulk retail categories both recorded a decrease in total returns this quarter compared to last year, while shopping centres and the overall retail category experienced significant increases. The shopping centre category recorded a total return of 21.95% in September 2006, up from 14.57% in September 2005; the bulk retail category returned 11.00%, down from 14.11% in September 2005; the other retail sector (combined small shopping centres, small bulk retail outlets and strip retail) returned 12.69%, down from the total return of 20.31% experienced in September 2005; and the combined retail category returned 19.38%, up significantly from 14.83% in September 2005.