Commercial values set to rise in next two years
THE SPECTRE of rising rents in the Auckland office market has seen New Zealand’s listed property sector rated as ‘‘fair value’’ by sharemarket research house Morningstar.
Morningstar said the sector would continue to perform strongly on the back of New Zealand’s strong economy.
All the sector’s stocks offered relatively attractive yields, but Morningstar followed three specifically: Precinct Properties, Goodman Property Trust and Kiwi Income Property Trust (KIP).
All three offered ‘‘respectable’’ unfranked yields of 5 to 6 per cent, said Morningstar analyst Nachi Moghe.
Despite rising interest rates, he expected commercial property values would rise for another one or two years.
This he said was due to buying competition from overseas sources and some capital upside from underlying property income.
Stocks with a heavy weighting towards Auckland office properties were likely to do the best, as supply was muted and vacancy rates were low, setting the scene for rent rises.
Moghe rated Precinct Properties and Goodman as the most likely to surprise on the upside.
Precinct received 60 per cent of its rental income from Auckland and was ‘‘influential’’ in the move of the central business district towards the waterfront where it was positioning itself.
Goodman Property, whose portfolio of business parks and warehouses was 92 per cent weighted towards Auckland, was also expected to see solid rental growth and to save costs from a reducing land bank.
A third of KIP’s portfolio was weighted towards offices but upside from firming rents would be limited because its recently completed ASB North Wharf office block had fixed-rate rent reviews.
KIP’s office rents were also slightly higher than market rates, so any uplift in rents would be modest, he added.