NZ's commercial property star outshines UK, US: IPD

Returns on New Zealand commercial property are globally attractive, especially in its major market, Auckland.
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Returns on New Zealand commercial property are globally attractive, especially in its major market, Auckland.

New Zealand's commercial property sector continues to stack up well internationally, according to the latest Property Council/IPD New Zealand Property Index.

Returns softened slightly in the September quarter, down from 13.1 per cent in June, but were still robust at 12.7 per cent for the year, up from 11.4 per cent a year ago.

The 10-year average is 10.7 per cent.

New Zealand returns were still well above the United Kingdom at 4.2 per cent, Japan at 8.8 per cent and the United States at 10.1 per cent. 

READ MORE: Commercial property sector's dream run tipped to turn in 2018

Anthony De Francesco, of IPD and MSCI Real Estate - a company which specialises in real estate measurement - said New Zealand's market was being driven by strong flows of capital into the country.

There was strong demand from Asia for New Zealand assets "due to their attractive high income return." 

 "We are also seeing cap rates [capitalisation rates] continue to firm across key sectors. Indeed, cap rates are now hovering below rates recorded in 2007," he said.

A "cap rate" is the rate of return on a property based on its expected income.

Total returns for the September quarter were up 1.8 percentage points to 13 per cent for retail property, and 0.6 percentage points to 10.7 per cent in the office sector, compared to the same period a year ago. 

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A September figure for industrial property was not available.

Property Council's chief executive Connal Townsend said that the news was good for the commercial property sector, and investors looking to purchase commercial property here.

"The market did appear to moderate post-Brexit; however in light of recent global economic events New Zealand commercial property remains the silver lining in a sometimes uncertain global property market."

He cautioned, however, that central and local government needed to take a proactive approach to ensure the commercial property sector remained resilient to a downturn.

"There is a need to reduce exorbitant regulatory charges and remove cross-subsidisation," he said.

 

 - Stuff

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