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Auckland retail and commercial property market holds steady as economic growth awaited

Monday 8th March 2010

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The Auckland retail and commercial property market seems set for a quiet 2010 with both vendors and purchasers adopting a cautionary stance, according to Darroch Research.

Based on its latest quarterly survey for September 2009 and an index which measures commercial sales performance since the beginning of the millennium, Darroch said while the market expressed relief that neither a land tax nor capital gains tax would be in this year’s Government budget, the issue of depreciation rebates remains on the table.

“Overall, the market is interestingly poised,” the Darroch report said. “A number of negative indicators still remain influential including easing rent levels, rising lending rates and a weakening New Zealand dollar.”

Economic growth forecasts for 2010 are a positive for commercial and industrial property returns however.“In terms of investment property, we believe our next quarter results (March 2010) will set the tone of the market for the remainder of the year,” the report said.

Overall returns for Auckland retail property edged down by five basis points from 7.83% to 7.78% from the third to fourth quarters. Income returns for Auckland industrial property in the fourth quarter of 2009 recorded 8.85%, nearly identical to the third quarter.

Over the past 18 to 24 months interest in industrial property has weakened substantially, but the latest result is really the first sign that this market is perhaps starting to stabilise the report said. Commercial lending rates now mean that borrowing costs are in excess of rental return, which is expected to slow investor demand.

Rising interest rates will also probably quell owner-occupier demand which had been very strong over 2009. The report notes that Asian investors have played a significant role in reviving demand for retail investment in Auckland.

“In many respects they have shown a preference for Auckland property over alternative property options,” the report said. “To a degree, vacancy risk is mitigated given there appears to be a ready supply of willing tenant businesses drawn from their community."

"Some Asian investors fund their purchases offshore, and/or pay cash, meaning they are not as vulnerable to rising domestic commercial lending rates.”

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