Commercial property market delivers a strong return in Q1

New Zealand commercial property market delivers a strong return above the long-run average in Q1 2014

The Property Council New Zealand/IPD New Zealand All Property Index results released yesterday showed a total return of 10.4% for the year ending March 2014. This was comprised of 7.8% income return and a positive 2.4% capital growth.

The March 2014 results are lower than the previous quarter (11.0% total return) and against the corresponding period last year (11.0% total return). Importantly, the latest return represents a strong result as it resides above the long-run average annual return of 10% (see Figure 1).

Property Council New Zealand/IPD New Zealand All Property Index provides a broad measure of returns for commercial property investment in New Zealand. The index database is comprised of property assets from 29 partici
ing funds with a combined asset value of NZ$12.6 billion representing 593 investments.

Figure 2 reports return performance across key property sectors. Notably, strong return performance was mainly supported by strong returns by the office and industrial sectors. The office sector strengthened from 9.8% in 2013 to 11.6% in 2014. The strong result is consistent with a buoyant employment conditions. Industrial returns were relatively steady moving from 10.6% to 10.5% over the 12 month period. In contrast, the retail property sector displayed a softening in return performance from 12.6% in 2013 to 8.8% in 2014. The retail weakness reflects continued softening in New Zealand’s retail trade growth.

Dr Anthony De Francesco, Executive Director of IPD Australia and New Zealand said, “the latest IPD index results highlight that the New Zealand commercial property market continues to deliver strong and attractive investment returns.”

“The strong return performance is underpinned by a combination of favourable capital market conditions and space market fundamentals conditions which have seen cap rates firm.”

Figure 3 shows the comparative return performance of the New Zealand commercial property market against selected property markets. The New Zealand property market has outperformed the Australian property market since September 2012 and compares favourably against other global markets. Currently, the New Zealand market delivers a premium of 1.10 percentage points over the total return of the Australian property market. In terms of income return, the New Zealand property market offers an attractive premium of c70 percentage points over the income return for Australian property.

Full release with charts: IPD_results_for_Q1_2014.pdf
Mr Connal Townsend, Chief Executive Officer of Property Council of New Zealand said, “we have been outdoing the Australian market while also ranking desirably against other countries. This is a clear demonstration of New Zealand’s improved market conditions”

“The Index results for the last quarter tend to indicate that we are now coming out of the recovery phase that marked the last year's results - and we are now showing the moderate but consistent returns that reflect both the confidence of the commercial property industry in particular - and the growing strength of NZ's economy in general.”

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