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Commercial property returns move into upswing phase

Thursday 25th November 2010

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A gradual slowing of the decline of commercial property capital values market is helping deliver improved investment returns, according to the Investment Property Databank.

The index, which broadly measures commercial property market performance, showed an overall total return of 6.2% for the 12 months ended September 30, based on 367 properties with a value of $8.5 billion.

The return was made up of an 8.1% income return and a -1.8% capital return, the latter figure reflecting a slight downward adjustment to asset values over the previous year. The decline in capital values is slowing, said Anthony De Francesco, IPD’s managing director for Australia and New Zealand.

"It clearly highlights that the commercial property investment market is progressing through the recovery phase of the investment cycle, although moderating," he said. "The index release shows that the commercial property market is in the upswing phase."

Annualised total returns for the latest year for the office, industrial and retail sector indices stood at 4.6%, 7.1% and 7.7% respectively. There has been a significant improvement in the office property sector, driven by strengthening demand conditions, while the retail sector is showing signs of softening in line with a general moderation in retail demand.

De Francesco said the New Zealand property market has experienced a relatively mild downturn in comparison to other countries, and has moved closely in line with Australia's. The UK, USA and Ireland experienced the greatest decline in total return, being the most adversely impacted by the spill over from the global financial crisis.

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