New Zealand Property Index still showing good returns

9:56 AM Friday July 25, 2014 True Commercial

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

The March 2014 results are lower than the previous quarter (11 per cent total return) and against the corresponding period last year (11 per cent total return). Importantly, the latest return represents a strong result as it resides above the long-run average annual return of 10 per cent (see Figure 1 below). 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 participating funds with a combined asset value of NZ$12.6 billion representing 593 investments.

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Figure 2 (below) 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 per cent in 2013 to 11.6 per cent in 2014. The strong result is consistent with a buoyant employment conditions. Industrial returns were relatively steady moving from 10.6 per cent to 10.5 per cent over the 12 month period. In contrast, the retail property sector displayed a softening in return performance from 12.6 per cent in 2013 to 8.8 per cent in 2014. The retail weakness reflects continued softening in New Zealand’s retail trade growth.

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Figure 3 (below) 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.

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Commenting on the above results, Connal Townsend, chief executive officer of Property Council of New Zealand said it was notable that New Zealand was doing better the Australian market while ranking well against other countries.

“This is a clear demonstration of New Zealand’s improved market conditions,” Townsend said.

“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. 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,” Townsend said.