Demand tipped to up Auckland apartment rents

City Sales MD Martin Dunn says rising apartment prices have led to a drop in investment yields. Photo / APN

Average Auckland apartment sale prices rose more than a third in the past two years yet rents were static. But that could be about to change.

A report out today from City Sales shows average Auckland inner-city apartment rents in April 2012 were around $350 an apartment and were roughly the same last month.

But the report predicts immigration and the growing economy will drive up demand for accommodation and push up apartment rents.

Martin Dunn, the firm's managing director, said sale prices had risen from around $250,000 in April 2012 to more than $300,000 last month.

See the report here:

Owner-occupiers were not the dominant buyers - nearly 80 per cent of all apartments had been sold to investors, he said.

But the average gross yield for those investors had dropped from over 10 per cent to less than 7.5 per cent.

"Rising sale prices for apartments have resulted in investment yields dropping significantly. Static rental levels and rising interest rates may affect these yields," he said.

Around 3000 new apartments are now being built in Auckland, a 12 per cent increase in stock.

New builds, with today's construction standards, are selling off-the-plans at $7000/sq m to $10,000/sq m, the report says.

"Investors in the apartment market tend to do best out of the cheapest option - studios. This is because even the smallest rent rise impacts highest on the most modest exposure. Rents will rise again as the economy and immigration continue to grow," the report says.

In 1991, Auckland had only about 228 apartments spread across just eight inner-city buildings. Now, 26,000 apartments are in 460 buildings.

"Many of these suites are 10 to 20 years old," the report says, pointing to refurbishment as an option to increase rental income and sale price.