Commercial property returns reach record highs

The commercial property market is booming with returns to investors at record levels.

Thursday, September 8th 2005, 11:44AM

The latest figures from the Investment Performance Index, the commercial property survey of the Property Council of New Zealand, show commercial property investors have received the highest return in the history of the index – 18.13% in the year to June 2005, well above the 14.62% investors earned on average for the previous year.

Returns from investing in New Zealand commercial property continue to improve, with almost all sectors showing a significant increase in total returns compared to June 2004 and some sectors experiencing their highest returns since the inception of this index, according to Property Council national director Connal Townsend.

“While income returns remained steady at 9.49%, it is the strong increase in capital value that has driven the total return growth,” says Townsend.

“This is illustrated by the capital returns for each sector, ranging from 4.97% for New Zealand bulk retail to 12.72% for Wellington CBD office,” he says.

Property Council Research chair, Alan McMahon, says that the over-all capital return of 8.07%, reflects continuing confidence in the property sector.

“Investors are optimistic about the performance of non-residential property. This confidence is well-founded, and is built on the back of strong occupational demand across all sectors”.

Wellington CBD office space was back on top as the standout performer this quarter, after falling behind the industrial sectors in March 2005. Its total return was an impressive 24.57% (up from 13.82% in June 2004).

This was driven by a very significant increase in capital return over the last 12 months, from 3.21% in June 2004 to 12.72% in June 2005. The Auckland CBD office sector continued its recent rapid improvement to record a total return of 15.34%, up from 12.08% in June 2004.

The industrial sector maintained the significantly high returns achieved last quarter with NZ industrial recording a total return of 22.78% (up from 13.75% in June 2004), and Auckland industrial returning 22.41% (up from 13.66% in June 2004).

Of the four retail categories, both the ‘other retail’ (combined small shopping centres, small bulk retail outlets and strip retail) and ‘bulk retail’ categories experienced an increase in total returns over the last 12 months with other retail returning 20.55% (up from 17.76% in June 2004) and bulk retail returning 14.69% (up from 14.16% in June 2004).

This is the first time since December 2003 that bulk retail has experienced a 12-month total return increase.

Of the other categories, in the year to June 2005 shopping centres returned 15.15% and the combined retail category returned 15.39%, compared with 19.87% and 18.70% respectively in June 2004.

Eighteen leading property owners and managers provide information for the investment performance index. The figures are based on analysis of 289 properties, valued in excess of $5.41 billion and covering more than 2.40 million sq m of net lettable area.

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