Commercial bucks the trend

By Chris Hutching

Friday 21st May 2004

The pattern of increasing returns from commercial property investment have continued to strengthen due to higher occupancy, consumers' spending and more corporate activity involving overseas fund managers buying office towers and shopping centres.

During the 1990s the returns from commercial property were poor, as many buildings fell in value and rentals moved slowly upward.

But over the past couple of years the returns from rentals and capital appreciation have strengthened, the Property Council of New Zealand investment performance index for March shows.

The composite property return an overall average return from commercial property investment, irrespective of the type of investment vehicle was 12.88% for the year to March 2004, showing a healthy increase from the March 2003 figure of 10.20%.

The various retail categories were the highest performers, taking each of the top four placings in the latest survey, followed by the industrial categories.

The CBD and non-CBD office categories took the bottom five places.

Council research manager Andrew Downing said income returns (rentals) had been steady but strong growth in capital values of retail properties had pushed their returns ahead of those from industrial and office property.

The shopping centres category was the top performer with 18.20% returns, followed closely by the other retail category combining small malls and specialty retailing on 18.15%.

The general retail category was third with a 17.53% return, while bulk retail (despite being one of two categories to experience a fall in the total return compared with March 2003) filled took the top four positions at 14.93%.

The Wellington CBD office sector experienced a fall in the total return, from 12.55% in March 2003 to 11.27% in March 2004.

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