KEY POINTS:
Industrial property is showing the lowest return of any investment real estate category and its fortunes have had a sharp downturn in the last year.
The Property Council's investment performance index out this week showed factories, warehouses and logistics buildings gave a 12.6 per cent total return for the March year.
Industrial property showed a 4.1 per cent return in capital growth and 8.2 per cent income return but these two numbers do not add up to 12.6 per cent total return.
Gabriela Slezakova, research analyst at the council, said there had been a substantial change in the industrial figures in the past 12 months.
Industrial properties' total return in the year to March 2007 was 16.2 per cent, she said. Last year, CBD offices returned 22.2 per cent.
Industrial property fortunes have not always languished.
Returns from this asset class exceeded returns from CBD offices in 2005, Slezakova said.
At 21.9 per cent, CBD offices performed better than any other real estate class in the latest survey, made up of 14 per cent capital growth and 7 per cent income return.
Retail property was the second-best asset class, returning 19.7 per cent, comprising 11.9 per cent capital growth and 7 per cent income return.
Overall, the New Zealand composite property return was 18.3 per cent, comprising 10.3 per cent capital growth and 7.4 per cent income return.
The council's index is the leading benchmark of property investment returns and the figures are based on an analysis of more than 330 properties worth more than $8 billion.
The council measures more than 330 properties valued at $8 billion.
The council said its survey was even more accurate because the diagnostic tools that accompanied it indicated that more than half the sample had valuations recorded for the March quarter.
"This adds to the structural integrity of the index as a barometer of investment returns for the sector," the council said.
Connal Townsend, Property Council chief executive, said good returns in the commercial and retail sectors might not continue.
Alan McMahon, council research chairman, said the latest figures were calculated before the credit crunch and it was likely that capital returns would reduce.
But tenant demand remained strong, rent increases and low vacancies were all good signs, he said.
The largest listed industrial property specialist is Goodman Property Trust, whose share prices closed at $1.29 yesterday, down from a 52-week high of $1.45. Property For Industry, a smaller industrial specialist, traded yesterday at $1.21, down from its annual high of $1.45.
John Dakin, chief executive of the Goodman Property Trust's manager, said industrial property had certainly performed less strongly than other sectors but it tended not to drop as much as others and he was not surprised at the latest figures.
He has noticed a few industrial properties up for mortgagee sale, which he said came as little surprise, particularly with land holdings which were not producing any returns.
He predicts more investment property mortgagee sales, saying credit was hard to come by and the market had become tough.
Bayleys listed 16 mortgagee sales on Saturday, including industrial, apartment, rural and commercial property. The agency has a special mortgagee and liquidation link advertising 30 mortgagee properties and says that in today's market an increasing number of properties are in receivership and being offered for sale at discounted prices.
MORTGAGEE SALES
Tenders close July 2 for these Bayleys offerings
Manukau units:
* Industrial units of 101 sq m
* Four commercial units also selling.
* Marketed as "fantastic opportunity".
Manukau Business Park:
* 10 commercial or industrial units.
* 22 incomplete industrial units.
* Marketed as "must sell".
