Returns expected to stay elevated
New Zealand's commercial property market remains on the upswing, writes LIZ McDONALD.
The fortunes of Kiwi commercial landlords are continuing to look up.
Their returns are continuing to grow, averaging 12.4 per cent in the year to the end of December, according to the latest index calculated by global analyst IPD and put out by the Property Council. This was up from 9.9 per cent in the previous 12 months, and better than many other countries including Australia.
The latest figure, made up of 7.9 per cent rental income and 4.2 per cent capital growth, puts commercial property's total returns back at early 2008 levels.
Property Council chief executive Connal Townsend said the results were an encouraging sign for the commercial property industry in New Zealand.
"The latest results cement our place in recovery and with that comes a huge sigh of relief," he said.
"With market conditions improving we are excited about investment returns and hope for the office sector to continue to do well."
Kiwi landlords' returns have been volatile in the past 10 years, with capital values making the difference.
Investors' average returns peaked at 24 per cent in 2007 before taking a sharp drop with the property market slowdown and global financial crisis.
Things bottomed out in mid- 2009 with annual losses of 4 per cent if valuations were counted, and have been improving steadily since.
Overall returns passed the long-term average figure of 10 per cent last year, and have continued rising as values grow. The latest figures were up slightly from the year to June.
Within Canterbury returns have varied according to the effects of the earthquakes on differing locations and markets, but many have done very well, especially industrial and suburban office landlords.
Across the sectors New Zealand wide, office landlords fared best.
They made 12.6 per cent returns in the past year, up from 7.4 per cent in the previous 12 months.
Retail landlords were close behind, although their annual returns of 12.3 per cent were down from 13 per cent the year before. The report said the drop-off reflected "continued softening" in the growth of New Zealand's retail trade.
Dr Anthony De Francesco, executive director for IPD in Australia and New Zealand said the results highlighted that the New Zealand commercial property market "remains on the upswing, outperforming many global counterparts".
"Solid performance of the New Zealand property investment is consistent with improvement in underlying macroeconomic fundamentals.
"Expected strong economic growth in the near term should be reflected in performance of commercial property markets.
De Francesco said investment returns were expected to stay above the long-run average.
The report was based on properties worth a total of $12.3 billion.
- © Fairfax NZ News