New record high for Wellington CBD

Wellington CBD offices returned to the top spot in the Property Council of New Zealand's (PINZ) Investment Performance Index survey this quarter, reaching a new all time high total return of 24.98%, up from 21.01% in March 2005. This was driven by a significant increase in capital return over the last 12 months, from 9.39% in March 2005 to 14.53% in March 2006.

Thursday, July 27th 2006, 12:00AM

by The Landlord

Returns from commercial property investing have maintained the high levels reached in recent quarters, with most sectors showing increases from returns in March 2005, says PINZ national director Connal Townsend.

Latest survey figures show investors receiving an average return of 18.44% in the year to March 2006, well above the 16.69% investors earned on average for the previous year.

"While income returns have remained steady at 9.05%, it is the continued strong increase in capital value that has driven the total return growth over the last few quarters," says Townsend.

"This is illustrated by the capital returns for each sector, ranging from 4.57% for Auckland non-CBD office space to 14.53% for Wellington CBD office space," he says.

Property Council research chair Alan McMahon says, "These numbers demonstrate the continuing effects of capital gains. To residential investors, capital gain is typically required to make a low rental return palatable. In the commercial property market however, investors have been enjoying 8% to 10% rental or income returns year after year, so when capital gains occur on top, the results can be outstanding".

The Auckland CBD office sector continued its recent rapid improvement to record a total return of 6.84%, up from 14.41% in March 2005. The Auckland non-CBD office category was the only office sector to experience a decrease over the last twelve months - recording a total return of 13.90% (down from 16.58% in March 2005).

The two industrial sectors could not maintain the record returns seen over the last 12 months, with figures for both sectors dropping significantly. The New Zealand industrial sector experienced a total return of 15.96%; down from 22.68% in March 2005, with the Auckland industrial sector returning 15.92%; down from 22.28% in March 2005.

Three of the four retail categories experienced an increase in total returns over the last 12 months, with only 'other retail' (combined small shopping centres, small bulk retail outlets and strip retail) recording a decrease. This sector returned 14.31% in March 2006, down from the total return of 19.73% experienced in March 2005.

The 'bulk retail' category returned 14.11%, up from 11.91% in March 2005; the 'shopping centre' category recorded a total return of 19.80%, up from 13.49% in March 2005; and the combined retail category returned 18.41%, up from 13.61% in March 2005.

The Investment Performance Index is figures are based on analysis of 257 properties, valued at over $4.57 billion, and covering over 1.89 million square metres of net lettable area.

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