Archive | IPD indexes

Property Council index goes walkabout again

The Property Council’s annualised quarterly index was down from June to September, but rose in the September quarter compared with a year earlier, just like it did in the March quarter. One very helpful reason for the better look in September is that the March quarter figure was revised downward.

I’ve written about the index figures changing before and, again, the reason for the better look of the graph wasn’t publicised.

The index is compiled by the Australian office of MSCI and is still known as the Property Council/IPD NZ property index. MSCI Inc of New York took over IPD Group Ltd of London in 2012. MSCI is best known for its global indexes. IPD measures commercial real estate markets and has been running a New Zealand index with the Property Council since 2007.

When MSCI executive director Anthony De Francesco presented the March quarter update in May, his chart showed the return on all property up from 12.1% in the March 2015 quarter to 13.9% in the March 2016 quarter. However, a revision since then shows the March 2016 return at about 12.9% – a 100-point cut.

The return rose to 13.1% in June, then fell to 12.7% in September.

Dr De Francesco said “the market appears to be stabilising, with the September quarter results showing a slight softening to the June quarter.”

Last year, Property Council chief executive Connal Townsend said only 15.3% of assets were revalued during the September quarter: “Due to the low levels of asset revaluations in the sample, it is important that users are fully aware that the risk of stock-specific circumstances disproportionately impacting sector and even all-property returns is high. The figures should therefore be treated as only indicative of market performance and should be considered within that context.”

But the index is given wider circulation than simply to Property Council participants.

After the latest results appeared again to make it hard to compare with a moving target, I emailed Dr De Francesco for an explanation.

Returns on the IPD property index to March 2016.

Returns on the IPD property index to March 2016.

My first email: I’ve just asked the Property Council NZ to send me the index information you presented yesterday, because the latest annualised total return is lower than that in March. For both March & September I’m using your figures. Is there a simple explanation?”

My second email: “The quarterly annualised return chart I was looking at was for March, showing a 13.9% return. On your long-term chart to September, that looks to have fallen to about 12.9%, so a decline from March through June to September has turned into a rise to June then a fall to September. But a 1% drop is big in just 6 months, and the June & September figures could also change substantially, so it’s hard to say there’s any trend at all.”

His response: “Yes, the return stats are different due to changing valuation profile. The return index results for June 2016 were based on a relatively very low sample. The Sep results is based on a significantly larger sample. Our methodology recomputes the June index results and prior results using a linear interpolation technique that back-fills missing quarters. It’s this variance in the valuation profile that gives rise to the changing return profile.”

That’s nice to know. But for me it means the index is unreliable because outsiders aren’t informed of the revisions, or their timing or reasons, so the graphs presented in this story are here only to illustrate the changeability of the index. I don’t feel I can rely on either the long-term performance charts or the quarterly figures.

Earlier stories:
25 May 2016: Industrial leads property returns index
11 November 2015: Low valuation level makes commercial property index “indicative-only”
16 May 2014: Property index figures go for a walk
2 December 2012: MSCI completes IPD takeover
Attribution: Property Council release, De Francesco response.

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Industrial leads property returns index

The total annual return on the Property Council’s quarterly commercial property index, produced by IPD, rose to an annualised 13.9% in the March quarter.

The return in the previous quarter was 12.5% and the 10-year average is 9.9%.

nzret1605In the latest index update, industrial was the clear leader with a 15.8% return, followed by retail on 14.3%, office 11.3%. The lift in returns is almost entirely the result of a climb in capital returns. The research showed average cap rates for office at 7.1%, retail 6.8%, industrial 6.9%.

Property Council chief executive Connal Townsend said the returns demonstrated a booming commercial property market: “The results show a high level of confidence in this sector and, for the last several years, the index has been delivering strong returns steadily.”

The index database comprises property assets held by 20 funds with a combined asset value of $14.1 billion, representing 563 investments.

Attribution: Property Council release.

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Low valuation level makes commercial property index “indicative-only”

The Property Council /IPD quarterly commercial property index showed a return of 12.6% for the year to September – 7.5% income return, 4.7% capital growth.

The all-property return was at its highest level since the March 2008 quarter, led by the industrial sector, up 13.1% over the 12-months. Retail assets returned 11.6%, office 12.7%.

Auckland continued to outperform Wellington with total returns of 13.5% compared to Wellington’s 10.1%.

But Property Council chief executive Connal Townsend said only 15.3% of assets were revalued during the September quarter: “Due to the low levels of asset revaluations in the sample, it is important that users are fully aware that the risk of stock-specific circumstances disproportionately impacting sector and even all-property returns is high. The figures should therefore be treated as only indicative of market performance and should be considered within that context.”

Attribution: Property Council release.

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Property index figures go for a walk

The quarterly commercial property index compiled by IPD NZ for the Property Council is a movable feast – returns presented in Auckland yesterday show quite different gains a year ago from those presented last year.

The latest return shows the index for all property has declined for the second quarter, most steeply in the retail sector.

IPD’s latest index for all property showed a total ungeared return of 11.4% over 12 months, on a rolling basis to the June & September quarters 2013, dropping to 1% in the December quarter & 10.4% in the March 2014 quarter.

Those figures are at odds with the index presented last September, which showed a total return of 12.4% for the June 2013 year, rising from 9.2% a year earlier.

The index for the retail sector last year showed the total return rising from 11.6% in the June 2012 quarter to 13.1% in June 2013. However, the returns released yesterday showed retail at 11.9% in June 2013, steadily falling to 10.8% in September, 9.9% in December, 8.8% in March.

The office sector made the biggest gain last year, according to the index then – from 7.5% in the June 2012 year to 12% in June 2013. The June 2013 gain is now put at 11.4%, rising to 12.2% in September then falling to 12% in December, 11.6% in March.

Attribution: Index release.

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Total commercial property return up slightly

The total return on the IPD-Property Council New Zealand commercial quarterly property index rose by a point from the June quarter to 12.4% for the year to September, made up of a 7.9% income return, 4.2% capital growth. That compared to a 9.9% total annual return to September 2012.

The retail return declined from 13% at the June quarter to 12.3% for the September year (8.2% income, 3.9% capital). The office return rose from 12% in June to 12.6% in September (7.9% income, 4.4% capital).

There was no return figure for industrial property because of the low amount of valuation evidence. September is a low quarter generally for valuation evidence – 29.1% overall, compared to 100% of the survey portfolio valued at December & June, 45% at June.

In an international comparison, IPD vice-president Dejan Radanovic, from Sydney, said New Zealand’s commercial property sector was the second best performer out of 8 countries over the year to June, behind the 13.3% total return (in local currency) in Canada. Capital returns were still negative in 4 of the others.

The New Zealand total return moved above Australia’s in September 2012, then plateaued, while Australian returns have continued to decline slightly.

In retail property, shopping centre returns moved above bulk retail in 2011 but then declined, while the bulk sector continued more steadily upward.

Mr Radanovic said green buildings outperformed non-green in Australia (the New Zealand index is still small) in all measures apart from opex – basic rent, return on income, capex & vacancy rate.

AMP Capital Investors (NZ) Ltd general manager Stephen Costley told a Property Council function for the index release that New Zealand was back on international investors’ radar, helped by population growth, which would also lift the retail property sector.

The IPD index is based on $12.3 billion of property, representing 592 investments. Office property makes up 39% of it, retail 31%, industrial 24%.

Attribution: Property Council presentation.

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CBD office returns lift commercial property index

g ipd130903 totThe Property Council’s all property index, run by IPD, showed a total return of 12.4% for the June year, from an 8% income return & 4.1% capital growth.

The total return for the year to December was 8.8% (8.1% income, 0.6% capital growth), and 9.2% for the year to last June.

IPD’s executive director for Australia & New Zealand, Anthony de Francesco, said a 2.3% increase in capital return lifted the total return for cbd offices to 14.7% and raised the return across the whole office sector by 1.2%.

Dr de Francesco said listed property entities outperformed other asset classes over the June year, achieving an annualised return of 15.9%. Equities were the closest competitor at 14.7%. Over the last 5 years, direct property returned 5.7%, listed property 8%, bonds 9.5%, equities -0.2%.

g ipd130903 sectorsHe said the latest results showed the commercial property market was continuing its post-global financial crisis recovery: “The ongoing improvement in returns for New Zealand property investment is consistent with strengthening macroeconomic fundamentals such as employment demand & retail trade. The index results suggest property investment returns should continue to rise above the long-run average return throughout the remainder of 2013 and into 2014.”

IPD has $12.1 billion of assets owned by 26 funds in its index database.

Attribution: Property Council release.

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Commercial property returns dip after steady rise

Published 1 March 2013
The Property Council /IPD property returns index dipped in December after climbing steadily from the 2009 trough to reach a 5-year high in the September quarter.

The December year total return was 8.8%, made up of 8.1% income & 0.6% capital growth. The September total return was 9.4%. A year ago the total return was 7.9%.
IPD’s managing director for Australia & New Zealand, Anthony De Francesco, said yesterday core international property markets had softened over the last 6 months, particularly in the US & UK, but had been relatively stable in this part of the world.

“While market fundamentals are likely to remain weak throughout 2013, strengthening investor interest in the property sector is likely to see some firming in cap rates for good quality property assets considered core investment grade.”

Attribution: IPD & Property Council release, story written by Bob Dey for the Bob Dey Property Report.

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MSCI completes IPD takeover

Published 2 December 2012

MSCI Inc, of New York, said on Friday it had completed its $US125 million takeover of IPD Group Ltd, based in London, foreshadowed 2 months ago.

MSCI is best known for its global indexes. IPD measures commercial real estate markets and has been running a New Zealand index with the Property Council since 2007.

MSCI chairman & chief executive Henry Fernandez said: “The acquisition of IPD greatly expands our coverage of private markets globally by adding the largest provider of commercial real estate information, indices & analytics. We are excited to pursue the tremendous growth opportunities that IPD brings.”

 

Earlier stories:

2 November 2012: MSCI confirms IPD takeover agreement

4 October 2012: MSCI working on IPD takeover

 

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Attribution: Company release, story written by Bob Dey for the Bob Dey Property Report.

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Green property index launched, NABERS energy ratings to come next year, retail still leads regular index

Published 7 November 2012

The Property Council and research company IPD launched a green property index based on 16 buildings worth $1.3 billion today, and the Green Building Council will add to the growth of sustainability checks next year when it launches a NABERS energy rating.

NABERS is the national Australian built environment rating system.

IPD research manager Peter McGuinness said the green star-rated office assets delivered an annualised total return of 8.9% to September, which was 250 basis points better than buildings that weren’t star rated. He said tenants were showing a preference for buildings that were more highly rated.

The next stage of index development for IPD will be to gauge the opex effects and to see which star rating performs best in terms of investment returns.

Green Building Council chief executive Alex Cutler said in a panel discussion at the launch that the better returns from star-rated buildings “confirms what we’ve believed for a long time but weren’t able to prove”. She said New Zealand commercial interests were also suffering by believing star ratings were only for premium buildings, when a large part of the market could be for refurbishments.

Ms Cutler said the council would launch the NABERS energy rating in New Zealand next March.

Property Council chief executive Connal Townsend said a lift in the refurbishment market wasn’t far away, coming as a likely result of changes arising from the pending report of the royal commission of inquiry into building failure caused by Canterbury earthquakes.

Mr Townsend said the costs of increasing the seismic standard from 33% to 67% of the new building standard might outweigh the benefits, but shortening the timeframe for buildings below 25% of the standard to upgrade would confer major benefits. That was expected to affect between 20-40,000 buildings.

The Property Council expected the Government to bring in changes arising from the earthquake commission’s recommendations throughout the country. But, Mr Townsend said, “In Auckland we haven’t got our heads around this at all.”

He said it would leave owners with 3 options: demolish & rebuild; refurbish, and in Wellington public servants were demanding this achieve 67% of the new standard for their own safety & security; and third, “lock the door and walk away”.

“This surely provides opportunity for new assets and for refurbishments getting ratings. I don’t know when this will start to occur, but over the next decade I think it will provide for some movement in the market.”

Goodman (NZ) Ltd’s general manager of property services, Murray Barclay, said the industrial & office park-focused company was seeing a widening gap between values of prime properties and secondary products as it added to its stock of star-rated products.

Typically Goodman would build to a 4 green star rating. “To take it beyond that, it really comes down to a customer initiative.”

Mr Barclay said the ability to show reductions in operating costs, for example, would lead to more tenants wanting star ratings.

“Prime is getting stronger but secondary is struggling to hold on where it’s at,” he said. “We’re seeing yield compression in prime, but no movement in secondary, but we haven’t seen that translate into rental growth yet.”

Commercial index report

In IPD’s regular half-year assessment of the commercial property market, managing director Anthony de Francesco said the total return had risen steadily over the past 2 years to 9.2% after falling to a negative 5.2% in 2009. 1% of the return for the latest period was capital, the rest income.

Retail remained the strongest sector, showing a 13.3% total return (8.5% income, 4.4% capital), up from a 12.1% total return in June and 5.7% in September 2011.

The total return from the office sector barely changed, finishing at 7.1% in September (7% in June, 7.3% in September 2011). The capital return on office was negative – minus 0.7% – and the income return was weaker than those in the other sectors at 7.8%.

The total return from the industrial sector was 9.6%, up a point from June. The capital return was 1.1%, income return 8.4%.

The main index is based on 581 investments worth $11.2 billion, held by 31 entities.

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Attribution: Presentation & releases, story written by Bob Dey for the Bob Dey Property Report.

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MSCI confirms IPD takeover agreement

Published 2 November 2012

MSCI Inc, of New York, said on Wednesday it was proceeding with the takeover of IPD Group Ltd, based in London, foreshadowed a month ago.

MSCI is best known for its global indexes. IPD measures commercial real estate markets and has been running a New Zealand index with the Property Council since 2007.

MSCI said it had entered into a definitive agreement to acquire IPD Group for $US125 million, funded through existing cash, subject to customary closing conditions.

Earlier story:

4 October 2012: MSCI working on IPD takeover

 

Want to comment? Go to the forum.

 

Attribution: Company release, story written by Bob Dey for the Bob Dey Property Report.

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