New Zealand Commercial Property Returns Stabilises In Line With International Trends

The New Zealand commercial property sector continues its run as a strong performer globally, but it is experiencing a stabilisation in line with global trends.

“There is an emerging deceleration trend across international markets and across the world where income returns are getting squeezed and income yields are coming down," MSCI Vice President Bryan Reid.

“The total return as of March 2017 was 10.4 per cent. While a 2.5 per cent decline compared to the June 2016 result of 12.9 per cent, it is still well above the 10-year average of 8.5 per cent.

“When we look at the results in their entirety, relative to other global markets, New Zealand still has an appealing yield position," he said.

"For example, Japan, US, UK and Canada sit much lower than Australia and New Zealand at around the 4-4.5 per cent net operating yield."Mr Reid said globally, the overarching trend is that industrial continued to thrive and is the best performing market.

"In contrast, retail is the weaker performer," he said.

"This could be attributed to a rapidly changing sector and changes in consumer retail behaviours that are beginning to impact bricks and mortar stores.

"However, the industrial warehousing and distribution are doing well as e-commerce giants like Amazon gain popularity,” Mr Reid said.

Property Council Chief Executive Connal Townsend said that whilst the results show a deceleration, it is to be expected given a prolonged period of exceptional growth.

“Overall, the New Zealand commercial property sector is still performing well, given the trend towards deceleration of growth and yields internationally.

"We can see from the results that the peak of the market was reached in late 2016, and what we are moving into now is a prolonged period where returns will likely stabilise.

“What we need to remember is that if you look at the complete picture and consider what is happening globally, New Zealand is still seen as appealing for offshore capital investment, especially when we have a key gateway city like that of Auckland, which continues to be a big player internationally.”

Key data insights: Global

• New Zealand net operation income yields are some of the highest in the world at over 6 per cent – compared to Australia, United Kingdom, USA, Japan, and Ireland at between 4-4.5 per cent.
• The Netherlands was the only market to record a substantial performance increase in 2016.
• Industrial continues to out-perform globally at 10.1 per cent, followed by office at 6.9 per cent and retail at 6.8 per cent.
• The slowdown globally is evident across all sectors – office, retail and industrial.

Key data insights: New Zealand

• Total returns for March 2017 is at 10.4 per cent.
• Strongest performer is industrial at 13.7 per cent, followed by office at 10.0 per cent.
• Weakest performer was retail at 8.2 per cent.
•  The Auckland market is showing strong performance in industrial at 13.6 per cent, office at 13.5 per cent and moderate performance in retail at 8.3 per cent.
• The Wellington office market, partially due to the Kaikoura earthquake is showing weak performance at 3.2 per cent, but moderate performance in retail at 6.2 per cent.