Auckland property yields still attractive

Prime office and industrial properties in Auckland continue to represent good value despite the global economic impacts of Covid-19, according to a new regional analysis of Asia Pacific markets.

The report from Colliers International – titled Asia Pacific Real Estate: Still Good Value in a Changed World – compared property yields with other asset classes.

It found low or negative yields on government bonds continue to make property yields more attractive in Asia Pacific’s developed markets, including Auckland.

Richard Kirke, International Sales Director with Colliers’ New Zealand Capital Markets team, says two key factors are impacting the values of Asia Pacific investment assets in general.

“The first factor is the recession caused by Covid-19, which could peak in Asia Pacific during the second half of 2020.

“The second is record low interest rates – the result of a decade of loose monetary policy and recent emergency rate reductions.”

Kirke says most Asia Pacific markets will record negative real GDP growth in 2020.

“However, although uncertainty is high, the recovery that is already starting in China should spread gradually to the rest of Asia Pacific over the second half of 2020, with a sharp rebound in growth likely in 2021.”

He adds: “Over the past year, central banks in Asia Pacific have either held policy short-term interest rates at already low levels or reduced them further, including New Zealand.

“At the same time, interest rates are significantly higher in Asia Pacific’s emerging markets. As a result, developed property markets such as New Zealand look safer than emerging markets in the present environment.”

In the premium office sector, Auckland has among the highest yields in the region with average yields at 5.8 per cent which provides an attractive yield spread of approximately 5.0 percentage points when compared with the risk-free alternative of New Zealand 10-year government bonds.