Outlook
- Commercial property markets locally, nationally and worldwide have experienced greater vacancies of property, weaker tenant demand, rental value decline and subsequent capital value reduction over the last six months. The gap between yields on prime and secondary property has widened, and the definition of prime has become more narrow. However the local property markets of Hastings and Napier are proving resilient although not immune to these issues.
- Certain sectors of the market are still performing strongly and it should be remembered that this property index measures prime property across the sectors. Locally we are still producing positive total returns.
- There are grounds for cautious optimism as current economic indicators point towards greater economic activity, growth in consumer spending, rises in business confidence, house sale increases and increased migration, although this must be tempered by rising unemployment to date.
- Potential investors should remain cautious but opportunities do exist for well researched purchasers who understand the fundamental drivers of the property market.
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Investment Yields
- Investment property yields are still under some pressure to ease, with the Napier All Property Yield down 20 basis points (bp) from December 2008 finishing the June quarter at 7.6%. While Hastings remained neutral overall at 8.0%
- The Napier retail sector, with it’s dynamics of constrained supply in the prime core actually saw a strengthening of yields. All other sectors experienced a weakening in yields with the most significant movement in the office sector
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| Yields % |
Actual Yield |
Yield Shift |
|
Jun 08 |
Dec 08 |
Jun 09 |
6 mths to
Jun 09 |
12 mths to
Jun 09 |
|
Hst |
Npr |
Hst |
Npr |
Hst |
Npr |
Hst |
Npr |
Hst |
Npr |
| Retail |
7.2 |
7.0 |
7.7 |
6.7 |
7.6 |
6.6 |
0.1 |
0.1 |
-0.4 |
0.4 |
| Office |
7.8 |
7.3 |
8.1 |
7.7 |
8.2 |
8.2 |
-0.1 |
-0.5 |
-0.4 |
-0.9 |
| Industrial |
8.1 |
7.7 |
8.1 |
7.8 |
8.2 |
7.9 |
-0.1 |
-0.1 |
-0.1 |
-0.2 |
| All Property |
7.6 |
7.3 |
8.0 |
7.4 |
8.0 |
7.6 |
0.0 |
-0.2 |
-0.3 |
-0.3 |
*Note: Hst=Hastings, Npr=Napier
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|
Jun 08 |
Dec 08 |
Jun 09 |
| 10 Yr Govt Bond Rate |
6.42 |
4.88 |
5.97 |
| OCR |
8.25 |
5.00 |
2.50 |
| CPI |
4.00 |
3.40 |
1.90 |
| 90 Day Bank Bill Rate |
8.68 |
5.23 |
2.78 | |
The yield gap has closed over the last six months by 100bp with the movement in longer term interest rates. Property is now yielding 200bp above Government Bonds in Hastings and 150bp in Napier. There has been significant movement downwards on the other three measures, (refer to table at left) underpinning the attractiveness of the All Property Yield.
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Rental Growth
Rental growth has continued to decline with the All Property Index showing -0.5% growth in both markets over the last six months. There are some notable variances within the individual sectors with the office sector under the most pressure.
|
| Rents |
Nominal Rental Value Growth % |
|
Jan 09 - Jun 09 |
Jul 08 - Jun 09 |
|
Hst |
Npr |
Hst |
Npr |
| Retail |
0.0 |
0.0 |
0.0 |
0.0 |
| Office |
-1.1 |
-1.2 |
-1.2 |
-1.1 |
| Industrial |
-0.4 |
-0.3 |
-0.5 |
-1.0 |
| All Property |
-0.5 |
-0.5 |
-0.6 |
-0.7 |
*Note: Hst=Hastings, Npr=Napier
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 | |
| Morice Hastings & Napier Index Returns Annual Return June 09 |
Total Return % |
Income Return % |
Capital Return % |
| City |
Hst |
Npr |
Hst |
Npr |
Hst |
Npr |
| Retail |
3.3 |
12.5 |
7.3 |
7.0 |
-4.0 |
5.5 |
| Office |
1.3 |
-5.3 |
7.7 |
7.2 |
-6.4 |
-12.6 |
| Industrial |
4.0 |
4.4 |
7.9 |
7.7 |
-4.0 |
-3.3 |
| All Property |
2.9 |
3.9 |
7.7 |
7.3 |
-4.8 |
-3.4 |
*Note: Hst=Hastings, Npr=Napier
|
| Annualised Total Return % |
| 3-Years |
5-Years |
| Hst |
Npr |
Hst |
Npr |
| 10.4 |
12.0 |
16.9 |
17.5 |
| 7.1 |
2.7 |
13.9 |
11.3 |
| 9.2 |
9.2 |
15.9 |
15.9 |
| 8.9 |
8.0 |
15.6 |
14.9 | | |
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Comparative Data
- Commercial property in both Hastings and Napier have shown positive total returns of 2.9% and 3.9% respectively. Capital values in both cities have declined and the positive total return is underpinned by the income returns of each sector. The prime retail in Napier is the best performer with yields strengthening. Conversely the office sector in both markets have seen negative rental growth and a weakening of yields. They have produced the worst total return numbers across all the sectors.
|
Annualised
Total Returns % |
June 2009 |
3 Yrs |
5 Yrs |
| NZSX50 Index |
- 12.48 |
-7.96 |
0.73 |
| Property Equities (NZX Property Index) |
- 18.57 |
-6.25 |
3.84 |
| 10-Year Government Bonds |
5.43 |
5.93 |
5.92 |
| Inflation |
1.90 |
2.63 |
2.94 | |
- The annualised returns of 3 and 5 years are still showing good positive returns especially compared to other asset classes, but they are continuing on a downward trend from previously reported figures.
- The sample of total returns for different commercial property markets worldwide reminds us of the bigger picture. The vast majority of property markets are now reporting negative total returns including Australia and the wider New Zealand property market.
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| World-Wide Commercial Property Markets |
| Country |
Total Return % |
Period & Indexs |
| Australia |
-7.2% |
Year to June 2009 |
| Canada |
-1.2% |
Year to June 2009 |
| Ireland |
-39.0% |
Year to June 2009 Quarterly Index |
| Japan |
-5.7% |
Year to April 2009 *Indicative |
| New Zealand |
-0.8% |
Year to March 2009 |
| UK |
-22.1% |
Year to Dec 2008 | |
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For further information please telephone (06) 835 3682 or contact via email:
Simon Dunn simon@morice.co.nz
Brian Sides brian@morice.co.nz
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"Get more out of property"
The Morice average rent & yields summary prime property index returns are based upon a sample of actual properties that have been selected to be representative of the Hastings & Napier commercial property market. These have been valued on hypothetical terms to reflect the likely market rent for that property if let in the current market, subject to prevailing market conditions. A consistent approach with establishing relative values ensures that reliable trends and indicators can then be identified.
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Morice LTD – 116 Vautier Street, PO Box 320, Napier 4140, New Zealand
Ph +64 6 835 3682 Email property@morice.co.nz
Data Sources: NZSX data provided by the New Zealand Stock Exchange. Securities and Commodities data provided by Bloomberg. Inflation and Bond data provided by the Reserve Bank. Global Property Returns supplied by IPD. World Wide Commercial Property Market data supplied by IPD.
DISCLAIMER
Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy we have not verified it and make no guarantee, warranty or representation about it. The Morice index and performance numbers should not be relied upon in undertaking valuations or as a replacement for actual valuations. Morice has no liability for any losses, damages, costs or expenses suffered by any person as a result of any reliance on this information.
No part of this index may be reproduced or transmitted, in any form or by any means, without the prior written consent of Morice.
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