Investors keep their chins up

By Coran Lill

Friday 8th October 2004

Institutional investors in New Zealand's blue-chip commercial property market remain upbeat, a survey shows.

This year's Ernst & Young Real Estate Investor Survey is based on the responses of 11 unnamed institutional investors the report describes as together holding "a substantial proportion of New Zealand's property stock."

The investors were asked to indicate what annual income and total return they expected on investments for the financial year ending June 2005.

When completing the survey, investors were to assume the following investment conditions: rents at market rates, minimal vacancies, medium- to long-term leases and minimal short- to medium-term capital expenditure.

Figures generally show a continued firming of yields and total returns.

This is in spite of expectations of an imminent economic slowdown and a perceived peaking of the property market.

Initial yield expectations across all property sectors sit between 8 and 10% with anticipated total returns between 9.81 and 11.25%, according to the report.

In the three main centres, yield expectations for top office property firmed from 9.02% for 2003 to 8.39% for the year ending May 2005. Total returns are expected to move from 10.74% to 10.09%.

The report gave industrial property in Auckland, Christchurch and Wellington a "thumbs up," Ernst & Young spokesman John Schellekens said.

The figure recorded in the 2004 survey for blue-chip industry property initial yields was 9.47%. This year it is 8.75%.

The total return expected firmed from 10.89% to 10.52%.

Similarly, retail market yields and total returns look favourable especially for regional centres.

A possible levelling off of activity in the commercial property market is not deterring a continued "insatiable demand" for New Zealand prime commercial property stock, the report said.

One of the factors that was having an impact on the property scene was the influx of Australian investment companies, Schellekens said.

"These companies typically have lower return requirements based on levels experienced in the Australian market and their view that the New Zealand market has a similar risk profile as well as the lack of available property stock in Australia.

"Further, the risk-return profile for commercial investment property is considered reasonably attractive compared to other investment classes."

Comments from our readers

No comments yet