Stand out global performer

Yields in New Zealand’s commercial property sector remain some of the highest in the world – even though the sector is now stabilising.

Friday, June 9th 2017, 12:00AM

by Miriam Bell

The results of the latest IPD index from global investment data company MSCI show that in New Zealand net operation income yields come in at over 6%.

In comparison, net operation income yields in Australia, the UK, the USA, Japan, and Ireland sit around 4% to 4.5%.

This means that New Zealand’s commercial property sector is continuing its run as a strong global performer.

But the sector has started to stabilise in line with global trends, according to the MSCI index.

MSCI global research vice president Bryan Reid said the latest index highlighted the stabilisation of the global commercial property market, particularly for office and retail.

“There is an emerging deceleration trend across international markets and across the world where income returns are getting squeezed and income yields are coming down.”

Given this situation, New Zealand’s commercial market is a standout performer.

The index shows that total returns across the sector were 10.4% for the March 2017 quarter.

Reid said this was a 2.5% decline from the June 2016 result of 12.9%, but it was still well above the 10-year average of 8.5%.

“When we look at the results in their entirety, relative to other global markets, New Zealand still has an appealing yield position. Markets like the US, the UK and Canada sit much lower.”

Breaking down the results by sector, industrial property in New Zealand is booming with total returns of 13.7%, as compared to the global average of 10.1%.

The office sector returned 10.0% total returns (compared to 6.9% globally), while the retail sector was the weakest performer with total returns of 8.2% (compared to 6.8% globally).

Reid said this was the overarching trend globally with industrial continuing to be the best performing market.

In contrast, retail is the weaker performer, he said.

“This could be attributed to a rapidly changing sector and changes in consumer retail behaviours that are beginning to impact bricks and mortar stores.

“However, the industrial warehousing and distribution are doing well as e-commerce giants like Amazon gain popularity.”

New Zealand results are not a surprise as last year the commercial sector was tagged as one of MSCI’s global stars.

Property Council chief executive Connal Townsend said the results show a deceleration in commercial property, but it is to be expected given a prolonged period of exceptional growth.

“Overall, the New Zealand commercial property sector is still performing well, given the trend towards deceleration of growth and yields internationally.

“We can see from the results that the peak of the market was reached in late 2016, and what we are moving into now is a prolonged period where returns will likely stabilise.”

It is important to look at the complete picture and consider what is happening globally, he said.

Read more:

NZ commercial market global star

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