Something has to give in apartment market: Dunn

But the company’s director says that may be about to change.

City Sales, which specialises in the Auckland apartment market, has released its June report on the central city apartment market.

In it, it shows the average rent for the area, defined as Stanley St to Howe St and Quay St to Virginia Ave, has moved from just over $300 per week in April 2009, to about $375 in May this year.

The average sale price increased from about $175,000 in April 2009 to almost $300,000 in May and the average return to investors dropped from more than 9% in 2009 to just over 8% this year.

City Sales director Martin Dunn said there was no evidence rents were moving yet.  “But looking at all the parameters in the market, something has to give.  You can’t have cap rates dropping, price per square metre going up and rents staying the same. It can’t continue as it is.  With a growing city and a shortage of residential accommodation, the obvious weak point is rent but I can’t say it’s happening already.”

Apartments’ average price per square metre increased from $4141 in May 2009 to $5522 in May this year.

But Dunn said that was still good buying compared to new builds, which were selling off plan at $7000 per sq m to $10,000. Dunn said: “If you can buy in the CBD, where there is true intrinsic land value, at $5000 or $6000 per sq  m, why would you spend $7000 or more on a greenfields development?”

Dunn said there would be a 12% increase in the number of apartments in the Auckland CBD over the next two years. “Whether that will soften any potential rent escalation, I don’t know.”

City Sales proportion of sales to investors has hovered around 70% over the past five years, although it increased to almost 90% in March this year, and dropped as low as 40% in December 2011.

The report looked at freehold apartments only and did not include off-plan sales in its statistics.