Commercial property returns plummet to 16-year low

Commercial investment property has posted its lowest returns in 16 years, according to the Property Council.

The organisation has released its index of returns, which measures the money being made on 327 properties in 14 portfolios worth $8.2 billion at the end of March.

It found CBD offices had a -5.2 per cent total return in the year to June. A year ago, returns were above 14 per cent.

"The main driver of negative returns was the continuing writedowns of property values in June valuations. At -11.6 per cent for the 12 months to June, capital growth for New Zealand CBD offices was the lowest recorded since 1993. Income returns have continued to offset capital losses, and have risen slightly to 7.2 per cent for the year to June," the council said.

"A combination of softer capitalisation rates and an anticipated softening of demand has accelerated the pace of capital depreciation over the last quarter, from the -6.6 per cent recorded over the 12 months to March 2009. Auckland CBD offices have been hit harder than Wellington CBD, with capital returns of -13 per cent and -10.3 per cent respectively."

The news is even worse for other sectors.

However, indices for the other property sectors in June 2009 have not been made public because of a lack of valuation evidence from market participants.

Alan McMahon, chairman of the council's index advisory group, is worried about that.

"To maintain the integrity of the material published, there are a number of guidelines and rules that we consider prior to releasing performance numbers.

"We have an exceptionally good indicator of performance for the March financial year end, but have required more market data than was available to us for the release of a June update." McMahon said.