CBD Office Sector Best Performing Property Class
Press Release 13 June 2008
PROPERTY RETURNS “CBD Office Sector Best Performing Property Class”
Continuing strong demand for tenants matched to increasing rents and low vacancy numbers are expected to maintain good returns for commercial property investors despite a predicted softening of returns in the remainder of 2008.
Latest available figures for the year ending March 2008 show returns of 18.3%, down a little from 19.7% in the previous year, but still well ahead of the Bonds returns of just 5.8%.
However commercial property commentators warn that these figures do not take into account the full effects of worldwide credit crunch in the first half of this year with strong returns in the back half of 2007 lessening the impact of that crunch in the first quarter of this year.
Despite a predicted softening Connal Townsend, CEO of the Property Council says the strong market fundamentals are the culmination of several years of strong economic performance. “We don’t expect these excellent returns to continue, but we can still have confidence that the fundamentals for New Zealand’s commercial property markets are sound.”
Alan McMahon, Property Council research chair said “It’s important to appreciate that these are the results for the year ending March, and so includes valuation and sales data from strong ‘pre-credit crunch’ quarters in 2007. It is likely that as we progress through 2008, and these robust 2007 data drop off, that capital returns will reduce. However, fundamental tenant demand, illustrated by indicators such as increasing rents and low vacancies, continues to be strong.”
The detailed results show that for the 12 months to March 2008, the various investment sectors generated returns as follows;
/ Income Return /
Capital Growth / Total Return
New Zealand Composite / 7.4 / 10.3 / 18.3
New Zealand Retail / 7.0 / 11.9 / 19.7
New Zealand CBD Office / 7.0 / 14.0 / 21.9
New Zealand Industrial / 8.2 / 4.1 / 12.6
The diagnostic tools that accompany the indices indicate that while all assets are valued within the past 15 months, over half the sample had valuations recorded for the March quarter. This adds to the structural integrity of the index as a barometer of investment returns for the sector.
The PCNZ IPD Index is New Zealand’s leading benchmark of commercial property investment returns. The figures are based on analysis of more than 330 properties, valued in excess of $8 billion and are a part of the wider market data that Property Council New Zealand and IPD have on the real estate sector.
About Property Council New Zealand (PCNZ)
The Property Council is New Zealand’s property voice, a professional association that represents members who have a vested interest in commercial property. PCNZ actively involves itself with central, local and other government associated bodies, promoting the views, goals and ideas of our members. Membership is broad, including owners, managers, builders and investors of commercial property in New Zealand. Collectively, members own and manage a $24 billion commercial property investment in New Zealand. Members are committed to ensuring the continued growth of New Zealand's economy to help create a vibrant commercial property market.
IPD commenced its New Zealand service in March 2006, operating out of its office in Melbourne. IPD have entered into an agreement with Property Council New Zealand assuming responsibility for the generation of indices for the New Zealand market.
In addition to indices, IPD provides benchmarking services for a variety of direct investment vehicles (Wholesale funds, Superannuation and Pension funds, Property Syndicates), and indirect vehicles (Listed Property Trusts). These services are similar to those provided in other countries with the only material differences being the extent to which data is provided, and the initial offering of IPD’s new vehicle level analytics. The IPD New Zealand Databank covers over 330 investments with a value of almost NZ$8 billion.