Industrial property is still a stellar investment the latest report from international research house shows

2019-06-11 18:05:42

Auckland's industrial suburb of Penrose was the place to invest last year.

A new report reveals an 19.8 per cent return from a combination of income and appreciation in the value of industrial property there in the year to March 31 2019.

The real estate experts have for some time been singing the praises of investment in industrial property and the latest MSCI/ Property Council of New Zealand's Annual Property Index reinforces that.

The index shows industrial property returns - income and value appreciation - was 13.5 per cent for New Zealand industrial property overall, up from 12.6 per cent in the previous year. The index has a heavy weighting of Auckland property.

READ MORE: * Auckland industrial property a gold mine for Kiwi company Goodman Property Trust * Wellington industrial property vacancies shrink to a 10-year low * High demand and rising industrial property values double profits for Property For Industry

The index is used to show investors how well their investments are performing.

MSCI, an international research firm, compiles the index, and is an international provider of information on the performance of various investments including property, shares, bonds, and funds around the world.

Their New Zealand property index tracks the performance of about $14 billion of commercial real estate in New Zealand, like warehouses, factories, offices and shopping centres. MSCI produces a rolling quarterly index but not all the assets in the index are revalued at the same time. More of the properties tracked are revalued in the first quarter of the year.

Returns from industrial properties in Auckland rose to 13.7 per cent from 13 per cent in the previous March 2018 year.

Investment in office buildings in Auckland also did well. Returns for Auckland CBD offices were 14.2 per cent and and 13 per cent for Auckland office buildings overall.

Wellington CBD office buildings returned 11 per cent, up from 9.2 per cent

MSCI vice president research, Bryan Reid, said investments in property overall in New Zealand produced better returns than what investors globally earned.

That was shown in the New Zealand property index overall return of 10.6 per cent compared to the MSCI Global Property Index showing a return of 7.4 per cent. MSCI's Global Property Index tracks about US$1.6 trillion (NZ$2.4t) of property in 25 countries.

At 10.6 per cent New Zealand property returns were stable when compared with the previous year's 10.4 per cent.

Auckland property performed best in New Zealand returning 12.1 per cent, more than the previous year's 11.7 per cent.

Wellington's property market returns rose to 9.3 per cent from 7.2 per cent, the latter impacted in the March 2018 year by the effects of the Kaikoura earthquake.

Reid said MSCI's clients liked New Zealand and Australia's open and transparent economies and property markets. A big proportion of sales last year in Auckland were to overseas buyers.

Retail property returns were being challenged by technology change and online shopping around the world.  That change was driving the growth of industrial property returns as more warehouses and storage were needed to house goods close to where businesses operated and consumers shopped.

In Auckland retail property returns are holding up at 8.9 per cent while in Wellington they almost doubled to 6.4 per cent from 3.4 per cent in the March 2018 year.

Returns from bulk retail property eased to 11.5 per cent from 12.3 the previous year and shopping centre returns fell to 3.8 per cent from 5.3 per cent the previous year.

Colliers International director of research Chris Dibble said Auckland industrial vacancy was just 1.5 per cent of almost 12 million square metres of industrial space.

"We are starting to see rents now at the top end in Auckland increase by between 3 and 5 per cent per annum."

The Auckland industrial market was supported by strong manufacturing, construction and other industrial businesses.

Industrial property was the sector that provided defensible investment characteristics and the best returns in the long term, Dibble said.

The New Zealand property index shows the property market has had a strong run following the Global Financial Crisis with its highest returns about 2015-16 in New Zealand.

"In places like the US they are getting very worried because it's the longest expansion they've ever seen, their economic property cycle has not run this long before," Reid said.

"They're starting to think where are we, when are we going to turn around."

People had been calling the top of the market for some time, and it was hard to know when that would happen, "because we certainly haven't seen signs the turning point has been reached yet."

But there was still a huge amount of investment money globally available and looking for investment prospects and real estate was very popular, Reid said.

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