A property tale of two cities
THE COMMERCIAL property markets in Auckland and Wellington are sending investors a mixed bag of signals, according to the latest research by CBRE.
In Auckland, strong investor demand has pushed prices up and yields down although underlying rental growth has eased back, while in Wellington, prime properties are putting in a good performance but secondary stock continues to struggle, CBRE said in its latest MarketView reports on the cities.
In Auckland, strong investor demand had been the biggest market driver the last six months.
‘‘A combination of factors – favourable returns from property relative to other asset classes, improving occupancy fundamentals, low cost of and easier access to debt, and better capitalised purchasers – has led to a greater weight of capital chasing property from both on and offshore parties,’’ the Auckland report said.
‘‘At the same time, good quality investment stock with long lease terms to tenants offering strong covenants is generally tightly held.
‘‘When such properties have come onto the market, some of the prices achieved have far exceeded expectations and this trend has started to flow on to secondary properties offering better investment prospects.’’
The report said this had pushed yields down by around half a per cent since the beginning of the year for both prime and secondary office space and industrial properties. Retail yields had been more stable but that was probably due to a stronger performance earlier in the cycle.
‘‘The investment sector is supported by largely favourable occupier market conditions,’’ the report said.
‘‘For offices, this has resulted in good occupancy gains at the overall market level for the first time since the recession took hold.
‘‘Vacancy improvements for industrial have been more modest, with one-off moves leading to adverse vacancy impacts in some areas. New supply also had a negative vacancy impact on some retail sectors.’’ However, while net effective market rents had continued to recover, the rate of improvement had slowed.
CBRE research director Zoltan Moricz said demand from tenants for space in Auckland had been ‘‘surprisingly strong’’ the last 18 months and that had driven rental growth, but that had slowed in the last few months.
There were two main reasons for that. Firstly, after the recession tenants had been reluctant to commit to new space, creating an element of pent-up demand. Then,