Bumper year for commercial property

Hot demand for office space in Wellington and industrial buildings in Auckland helped commercial property produce its best ever returns in the year to March, figures from the Property Council show.

Where previously the residential housing market had boomed faster than commercial property, it is now slowing. The figures show strong growth in capital values pumping through the warehouse, factory and office space areas early in 2005.

The figures are a further sign that the property market generally has remained stronger for longer than many expected, including the Reserve Bank, which has hiked interest rates to cool growth in prices.

"There's constant talk about a fall off in residential, but as far as we can tell commercial property is still going full bore," said Property Council national director Connal Townsend.

The Property Council's Investment Performance Index showed overall New Zealand commercial property returned 16.74 per cent in the year to March 31, including capital growth of 6.9 per cent and rental income of 9.37 per cent.

This is up from total returns of 13.72 per cent the previous year, when capital growth was 4.02 per cent and income was 9.42 per cent.

The index is published after an analysis of values and returns from 282 properties worth more than $5 billion and covering 2.3 million square metres.

The figures show that the fastest growth in commercial property prices came in Auckland industrial property and Wellington office property.

A sharp increase in government spending and employment in Wellington has driven up rental yields in the capital's office sector, while strong employment growth and business investment in manufacturing and warehousing has powered rises in Auckland industrial property.

Wellington CBD office property produced total returns for the year of 21.41 per cent, including capital growth of 9.79 per cent and rental yields of 10.85 per cent. Yields edged up slightly.

Yields for Wellington office space are around 20 per cent higher than for Auckland office space.

"The public service has been expanding and that's certainly having an effect," said Mr Townsend.

Auckland industrial property returned 22.28 per cent, including 11.07 per cent from capital growth and 10.37 per cent from rental yields.

Shopping centre and strip shopping yields continue to run below those for office space and industrial property.

- nzpa