Commercial property returns fall as capital growth shrinks

Thursday 26th March 2009

Returns from commercial property dwindled in 2008 as capital growth slowed, according to the Property Council / IPD New Zealand Property Index for 2008.

The survey found total returns from direct property investment amounted to 9.4% in 2008, down from 22.4% in 2007. The decline reflected a slide in capital growth to just 2.1% from 13.7% in the previous 12 months. Income returns edged lower to 7.2% from 7.7%.

The financial crisis and ensuing recession have dragged the commercial property market into a difficult period marked by falling values and deteriorating property revenues," said IPD director Goran Ujdur.

"Like a growing number of offshore property markets conditions are likely to get worse before they get better," Ujdur said. "Risk is being aggressively re-priced."

In the retail sector, capital growth turned negative for the first time in six years in 2008, at -0.1% from 15.8% in 2007.

The figures show commercial property investments still outperformed equities and listed property trusts in 2008, when the broad All Ordinaries stock index fell 34% and property equities dropped 21%. Bonds, which tend to prosper in economic downturns because they pay a fixed rate, returned about 16% in 2008, according to the release.

Total returns in the CBD office sector fell to 11.9% last year, less than half their 2007 returns of 26.2%. For low-grade properties, capital growth flat-lined and total returns dropped to 7.7% from 22.7%.

Businesswire.co.nz

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