Published 3 June 2011
The IPD/Property Council commercial property index slipped a point from December to show a 5.9% total return for the March quarter, but still up from the September quarter’s 5.4%. The long-run return is 10%.
The latest index result showed an 8.3% income return, negative 2.2% capital return, compared to an annualised negative 2% in December. IPD presented an index for the December quarter showing a 9.4% total return, 0.9% capital growth, 8.4% annualised income return.
The index, compiled by Australian research company IPD for the Property Council, provides a broad measure of investment return for the commercial property market in New Zealand. The index database is made up of property assets from 13 entities with a combined asset value of $9.1 billion.
IPD’s managing director in Australia & New Zealand, Anthony De Francesco, said the results suggested the overall commercial property market was moderating, with the speed of the upswing slowing: “This is supported by various macroeconomic indicators (such as employment growth & retail sales growth), which are pointing towards a soft economic outlook over the short term.”
However, Mr De Francesco said the speed of the recovery would continue to vary across sectors, with the industrial sector continuing to outperform retail & office due to relatively favourable market conditions.
Industrial property outperformed the office & retail sectors with a total return of 9.2%. The retail sector delivered a return of 4.9%, up 140 points. Cap rates over the quarter stood at 8.4%, up 10 points, driven by the small increase in the retail sector’s average cap rate.
“Against selected global property markets, the New Zealand & Australian property markets compared favourably in terms of less pronounced post-global financial crisis slowdowns. In contrast, property markets for the UK & US experienced particularly pronounced downturns. Currently however, New Zealand’s annual capital return on quarterly periods is trending against the current positive directions of both the Australian & Canadian property markets, decreasing by 20 basis points to -2.2% for the March 2011 year. This reflects the uncertainty in New Zealand retail asset values, economic growth prospects & consumer spending.
“Return profiles for direct & listed property markets display distinct differences, especially over the short term. A clear distinction between the 2 investment structures is the trade-off between liquidity offered by listed property entities and lower volatility exhibited by direct property markets.”
Annualised listed returns were 9.4% for the March 2011 year (17.8% in 2010), direct property 5.9% (2.7%).
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Attribution: Company release, story written by Bob Dey for the Bob Dey Property Report.