Property returns power on

Commercial property investors received an average return of 17.78% in the year to December 2006, latest figures from the Property Council of New Zealand’s Investment Performance Index survey show.

Tuesday, March 27th 2007, 9:18AM

by The Landlord

This is slightly below the 18.66% investors earned on average for the previous year.

“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, all of which were positive. The highest category capital return was 13.01% for Auckland CBD Office,” he says.

Property Council research chair Alan McMahon says, “The continuation of the current series of outstanding returns come as no surprise. We know there is massive demand at the top end of the market for quality investment property, fuelled by high levels of available capital”.

“As capital returns increase, the income return or rent as a proportion of the value, inevitably decreases. As a consequence, the composite return for 2006, at 17.78%, is slightly down on the 2005 level of 18.68%.”

“However, I don’t think you’ll find any investors complaining, especially those in the CBD Office and Shopping Centre categories, which recorded annual returns well over 20%.”

Auckland CBD Office took over the top spot this quarter, reaching a total return of 23.05% (well up from 15.99% in December 2005). This was driven by a significant increase in capital return over the last 12 months, from 6.27% in December 2005 to
13.01% in December 2006.

The NZ CBD Office sector also continued its recent rapid improvement to record a total return of 21.78%, up from 18.32% in December 2005. The Wellington CBD Office market dropped slightly to a total return of 18.97% (down from 21.63% in December 2005).

The Auckland Non-CBD Office category experienced a significant decrease over the
last twelve months – recording a total return of 11.98% (down from 18.70% in December 2005).

The two industrial sectors continued the decreasing trend of the last few quarters. NZ Industrial experienced a total return of 13.20% (down from 24.60% in December 2005), while Auckland Industrial returned 13.17% (down from 24.39% in December
2005).

The NZ Other Retail and NZ Bulk Retail categories both recorded a decrease in total returns this quarter compared to last year, while NZ Shopping Centres and the overall NZ Retail category experienced significant increases.

The Shopping Centre category recorded a total return of 21.48% in December 2006, up from 15.29% in December 2005; the Bulk Retail category returned 9.16%, down from 15.52% in December 2005; the ‘Other Retail’ sector (combined small shopping centres, small bulk retail outlets and strip retail) returned 14.69%, down from the total return of 20.11% experienced in December 2005; and the combined retail category returned 18.86%, up significantly from 15.73% in December 2005.

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