Auckland leads in firming yields

Auckland's industrial, office and retail markets are going strong. Photo / Brett Phibbs

Office sector still offers best rental performance.

Commercial property yields across Auckland have shown the strongest drop across New Zealand over the past year, according to the latest NZ Prime Property Performance Index research published by CBRE.

The publication tracks the current and historic rent and yield performance of prime office, retail and industrial property submarkets in Auckland, Wellington, and Christchurch.

Zoltan Moricz, CBRE's senior director of research and consulting, says over the past year the industrial, office and retail investment markets in Auckland have experienced the most yield movement.

"The remaining market sectors experienced lesser rates of firming over the past 12 months. This is being driven by investors becoming less risk-averse. We are also seeing a broadening of investor interest, with a greater willingness among investors to take on secondary stock."

Moricz says rental growth has consolidated over the last quarter, with rent performance data for the December 2012 quarter highlighting that Auckland rents experienced minor growth because of a slight increase of retail rents, while office and industrial rents remained stable.

"On an annual basis, the office sector continues to offer the best rental performance, although the markets appear to have taken a breather at recently achieved levels during the latest quarter."

Wellington's rental performance has been flat because of the impacts of rising earthquake insurance levies and the generally weak market, especially in the industrial sector.

The rate of rental growth in Christchurch has consolidated around recent highs, with only the industrial sector driving rental growth in the latest quarter.

CBRE's research shows Auckland yields firmed by 50 basis points over the year, followed by Christchurch and Wellington with a 35 and 19 basis-point firming respectively.

Over the past three years Auckland has also shown the strongest yield trend improvement, firming by 62 basis points.

Across the sectors, industrial yields performed best over a three-year period, firming by 71 basis points below December 2009 levels. CBD retail and office are the second and third best performing sectors, with yields firming by 48 and 15 basis points respectively since 2009.

Over the recent December quarter, Christchurch was the top-performing centre with a yield firming of 13 basis points, closely followed by Auckland with a 12 basis-point firming.

Over the December quarter rents were stable in five of the eight market sectors covered in the survey, with Christchurch industrial and Auckland CBD retail the only sectors to show positive rental growth. Wellington industrial was the only market which experienced declining rents.

On an annual basis there was mostly positive "sectoral" performance with most market sectors showing rent growth. Rental trends ranged from an increase of 8.1 per cent in Christchurch industrial to a 5.4 per cent decline in Wellington industrial.

The three-year change percentages in the survey showed both Christchurch and Auckland have been the best-performing cities.

"The Christchurch office sector has shown the largest growth, however this has been artificially influenced by the transitional shift to the suburban office market after the earthquakes," Moricz says.

"The Christchurch industrial sector has also been a top performer due to the flow on effect of rising construction costs after the earthquake."

Wellington industrial and office are the only sectors which are under their base three years ago, ranging from 11.7 per cent and 8.6 per cent respectively.

Market survey

Commercial yields and rents
Conducted by: CBRE Research
Highlights: Office sector shows best rental performance
*Auckland leads in firming yields
*Investors taking secondary stock
Catalyst: Investors less risk-averse