Caution over capital values upswing
The Property Council New Zealand-IPD Commercial Property Index for the first quarter of 2012 has shown the first positive annual capital growth in three years for the broader New Zealand property market.
The index provides a measure of investment market performance across office, retail and industrial property sectors.
It showed capital growth of 0.2 per cent. Annual income return was 8.2 per cent, which resulted in a total return of 8.4 per cent for the year to March 2012.
The result represents a stronger return than the previous quarter's 7.6 per cent, but was still lower than the long-run total return of 10 per cent.
All property experienced a firming in annual capital growth of 70 base points, returning to positive territory after 14 quarters of negative growth.
The retail sector led the recovery phase with total return of 10.3 per cent.
The industrial and office sectors showed returns of 9.8 per cent and 5.9 per cent respectively.
Total annualised return for the retail sector increased significantly by 290 bps, driven by strong capital growth. Office returns softened by 50 bps while industrial returns held relatively steadily, increasing slightly by 10 bps.
The index comprises data from 19 participants, representing 24 funds and portfolios with 568 assets worth $10.3 billion, representing 65 per cent of the total New Zealand property market.
Participants in the survey represent real-estate investment trusts, unlisted wholesale property funds, unlisted retail property funds, property syndicates, private investors and the public sector.
The index details quarterly income return and capital growth and provides pricing and market metrics such as capitalisation rates, discount rates and capital values.
Property Council chief executive Connal Townsend said the results were a positive reflection of increasing confidence in the sector during tough economic times.
"It is great to see that the commercial property market is now a financially worthwhile investment option once again," he said.
"The industrial market is continuing to perform positively, inching its way closer to the long running average of 10 per cent."
IPD (Investment Property Databank) managing director for New Zealand and Australia, Anthony De Francesco, said the latest results suggested the commercial property market is showing signs of improvement with capital values generally stabilising over the year.
"Market conditions are likely to remain subdued due to generally weak demand, underpinned by a soft labour market."
"Modest recovery in economic growth will mildly support retail sales.
"As such, growth in effective rents is likely to remain elusive for the main part of 2012."
De Francesco said cap rates were expected to remain generally steady for the rest of the year, due to ongoing turbulence in capital markets.
However, pricing would vary across all the sectors – retail and industrial were expected to experience firming in cap rates .