Investment grade properties – the time to buy?

New Zealand investment grade properties – the time to buy?

Auckland Auckland, 2 , 25th November 2009:

The New Zealand Commercial Property market recorded a total return of -3.54% for the 12 months to September 2009, according to the Property Council / IPD Property Index released today.

These negative returns represent a substantial turn around from the story just 12 months ago where total returns were in the order of 10.7% per annum.

A summary of the investment performance across core commercial property sectors is reported in the Table below.

New Zealand commercial property investment performance year ending 30 September 2009 Sector indices Income return Capital return Total return Retail +7.36% -10.46% -3.81% CBD Office +7.44% -12.96% -6.41% Industrial +8.47% -5.57% +2.46% Composite +7.65% -10.46% -3.54% Share of asset revaluations 57.32%

Commenting on the data released to IPD clients, Mr John Garimort, Director IPD commented that; “The chart below illustrates the economic connection that so obviously operates between the Australian and New Zealand markets.

Both peaked at around the same time, have reacted to the financial crisis and lack of debt facilities in a similar manner”.

PC/IPD Property Indices -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 Dec-85 Dec-86 Dec-87 Dec-88 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Rolling Annual Return % Australia New Zealand Mr Connal Townsend, CEO of the Property Council stated; “With both markets seeming at or near their trough, it is not surprising that many astute investors are seeing this as a timely opportunity to acquire real assets at value prices:”

Interestingly the investment managers have been vigilant in ensuring that their portfolios have been marked to market.

“Looking behind the numbers, it is quite evident that the professional investment managers have acted quickly to ensure accurate information is provided to investors. Valuations for 57% of the sample were provided by managers to IPD, the highest on record for a September quarter. Investors in property funds have been kept well informed” said Mr. Garimort.

SECTOR COMMENT

Within the various segments of the New Zealand market, Auckland CBD offices have faired the worst with a total return of -8.88%. While Auckland’s running yield of 7.42% is line ball with Wellington CBD offices at 7.44%, capital returns for Auckland were -15.26% compared to Wellington’s -10.83%. Within the office markets, it’s quite clear that higher quality properties have faired better than the lower grade investments represented in the market.

Of particular interest has been the positive returns generated for the industrial sector. Mr Garimort said, “There are two material issues here, one being a low % of revaluations for this sector in comparison to the wider market.

The return recorded for this sector will lag that of the wider market. Secondly, the sectors high running yield, almost 100 basis points above the asset class average, more than offsetting the fall in capital values”

ENDS

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