Hawke's Bay commercial property continues to be a tale of two markets, according to Turley & Co's macro property market report.
The second-quarter report says since 2009 several factors have influenced the division: building location, quality, versatility, age, tenant surety, lease quality and, since 2011, seismic performance.
Seismically challenged buildings were the main reason for commercial property activity since 2012, causing both "pain and opportunity".
"Continually evolving" structural strengthening techniques offered opportunities for investors/developers. Some Hawke's Bay retail precincts were experiencing rental growth but overall commercial/industrial rents remained "flat at best" after several years of downward pressure, except for new development cost-related rents.
Most land values remained off their peak with most static, but building-cost inflation was lifting values especially for new accommodation.
Napier CBD's "development flurry" slowed due to oversupply and the exodus of office tenants to Ahuriri continued.
Havelock North's "stature" as a premium location continued to grow, reflected by its increasing significance as an office location.
Lowering interest rates was firming prime commercial/industrial values "whilst Hawke's Bay subprime property performance trails".
"Given sustained reduced interest rates and broadly better economic conditions, some investment property is likely to see even firmer yields 2015-16.
"We believe the cap rate trend is most probably increasingly downward (thus values trending higher). The necessary obvious caveat is the state of broader economic conditions and in particular confidence."
While green shoots in the Hawke's Bay economy looked promising, lower dairy prices and consumer confidence nationally threatened economic performance.
"However, we anticipate this will be much if not totally countered by lower interest rates and a more moderate Kiwi dollar value - if sustained these factors will most likely be a major broader economy offset to milk prices doom-and-gloom and Auckland residential property market implosion jitters."
International factors affecting the economy included Greece, Europe, and China's stock market. The US offered optimism, the report said.