Tale of two rental markets

GREG NINNESS
Last updated 09:20 13/08/2012

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A MARKED difference in the performances of Auckland and Wellington's prime property markets is revealed in CBRE's Prime Property Performance Index.

CBRE's report for the second quarter of this year shows that the fallout from the Christchurch earthquake is having a negative impact on rents in Wellington.

"Wellington rents are under continued downward pressure from the rise in earthquake insurance levies which have pushed up operating costs and lowered net rents in a market dominated by net leases," the report said.

"The exceptions have been prime offices where the supply/ demand balance is sufficiently favourable for landlords to enable rent growth and in large shopping centres where net leases are the norm."

CBRE said rents for prime office space in Auckland increased 3.3 per cent over the last three years, but declined 13.7 per cent in Wellington (refer to table).

For prime central business district (CBD) retail properties, rents in Auckland increased 10.2 per cent over the same period but dropped 1.9 per cent in Wellington, while prime industrial rents were up 7.1 per cent in Auckland and down 16.5 per cent in Wellington.

"The three year [office] rental trend shows a significant contrast between the two cities," CBRE said.

"A similar differentiation is also evident between Auckland and Wellington's prime CBD retail rents.

"Auckland CBD retail was the first market sector to show rent growth after the recession and this growth ensured that rents are currently over 10 per cent above their base three years ago, even though the growth trend has flattened out during the period."

The report also noted strong growth in rents for prime industrial properties in Christchurch, which had increased 5.5 per cent over the last year "due to the flow-on effect of rising construction costs after the earthquake".

There were distinct differences between yields in Auckland and Wellington, CBRE said.

The Wellington market had been underperforming, with yields at higher levels than three years ago, while Auckland was the "standout performer", with yields falling since 2009.

Overall prime yields for all property types in Auckland had dropped 0.43 per cent over the last three years but had risen 0.27 per cent in Wellington.

Wellington yields for prime office, CBD retail and industrial were all higher in the second quarter of this year than the second quarter of 2009, the report said.

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