Demand for prime industrial property is continuing to put downward pressure on yields and is pushing values up according to the latest overview of the Auckland industrial market by Bayleys Research.
The Bayleys Research's Industrial Yield index shows that the medium yield for Auckland-located industrial investment properties is now sitting at 7.75 per cent which is well down from a peak of 9 per cent in 2009, at the bottom of the post Global Financial Crisis (GFC) property slump in late 2007.
Ian Little, senior analyst for Bayleys Research, says yields are now at a similar level to where they were before the impact of the global financial crisis (GFC) and New Zealand's recession led to yields softening across all commercial property sectors.
"While the latest figures reflect the greater degree of confidence of investors in the sector, it should be noted that the sales profile of investment property differs significantly from that apparent between 2005 and 2007," says Little.
"Since the GFC, the renewed emphasis on risk has meant that sales are currently heavily biased towards the prime end of the market. Investors are seeking well located, modern premises with strong tenant covenants in place."
Secondary property by comparison has remained more difficult to sell, says Little. "The higher proportion of sales at the prime end of the market has therefore driven down the median yield despite the fact that the yield spread between prime and secondary properties has continued to widen."
A tightening of yields has contributed to an increase in total returns from industrial investment property as illustrated by the Property Council NZ and International Property Databank (IPD) performance indices.
In the year ending September 2012, giving the latest figures available, industrial property generated a total return (income plus capital gains or losses) of 9.6 per cent, the highest annual total recorded since the opening quarter of 2008.
Industrial capital returns moved back into positive territory in December 2010 with the national average now sitting at 1.1 per cent per annum with an income return of 8.5 per cent.
Little says the capital growth of Auckland-based industrial properties generally outperform the national figures. IPD maintains a number of location-based indices and returns from Penrose premises generated a total return of 9.7 per cent in the year to September 2012.
Bayleys' best sellers
Recent industrial investment property sales included:
* Unit F, 19 Triton Drive, Albany: This 749 sq m unit was sold for $1,880,000 at a 7.65 per cent yield on a four-year lease by Matt Mimmack and Laurie Burt of Bayleys North Shore Commercial.
* 30-32 Rosebank Rd, Avondale: A multi-use 868sq m site with two industrial tenancies and one three-bedroom residential dwelling which was sold for $740,000 at a 6.7 per cent yield by James Were and Scott Kirk of Bayleys Auckland.
* 11 McDonald St, Kingsland: Six buildings, totalling 8797 sq m, on 1.06 ha industrial site were sold for $9,950,000 at an 8.95 per cent yield by Alan Haydock of Bayleys Auckland.
* 10 Monier Place, Penrose: A 1906 sq m industrial building, with medium to high stud warehousing and minimal office on a 2488 sq m site, was sold for $1,740,000 at a 7.9 per cent yield on a three-year lease from March 2012 by James Valintine and David Gubb of Bayleys Auckland.
* 8 Sylvia Park Road, Mt Wellington: This 826 sq m modern industrial unit was sold by Gubb, Valintine and Sunil Bhana of Bayleys Auckland for $1,681,000 at a 7.5 per cent yield with a four year lease from May 2012 to NZX listed Rakon Ltd.