While commercial office 'yield compression' is happening across the world, it appears New Zealand is more honestly reporting yields than most other countries.
Savills has produced a report showing the difference between 'true' yields than the more misleading quoted 'market' yields which can vary by as much as six per cent.
Kevin Richards, Savills NZ capital markets senior executive, says hidden tenant incentives, such as rent holidays and contributions to fit outs, reduce investment yields - sometimes considerably.
"The honesty of the New Zealand market is one of the attractions for overseas investors. Our yield reporting makes foreign buyers feel safe," Richards says.
Savills' latest 12 Cities report shows what appears to be a diverse range of income returns from world cities. But in reality, the range of yields is much closer.
Richards says Chicago has an advertised yield of 12.5 per cent but once incentives are disclosed the yield is, in fact, six per cent.
The cities measured in the report include Hong Kong, New York, Los Angeles, London, Tokyo, Paris, Sydney, Shanghai, Singapore, Miami, San Francisco and Chicago.
"Investors want integrity in figures and in New Zealand advertised or contract yields are close to reality. Our yields are reported fairly accurately, with some exceptions," Richards says.
The Savills' report says the average world "effective yield" is 4.2 per cent, ranging from 6 per cent in Chicago to 2.9 percent in Hong Kong.
Richards says investors value the "in-the-pocket" returns from institutional investment grade office buildings across the best world cities, including Auckland, in much the same way.
"Auckland sits on high returns compared to other major global cities but we are seeing continuing yield compression - plus seven per cent yields are now hard to get."
Prime grade offices in New York, LA, London, Tokyo and Paris are all being bought for effective yield of about 3.5 per cent; Sydney, Shanghai and Singapore at 4.5 per cent.
"By not reporting yields accurately, an average reduction of 1.7 percentage points is experienced by A-grade office investors in other global cities when they receive actual returns income net of costs - rather than headline rent.
"Investors looking for in-pocket income returns should look carefully at net effective yields, particularly in countries where high gross market yields can be misleading."
Richards says there haven't been a lot of offshore sales because there are not many opportunities to buy. "Most foreign investors have a preference for Auckland's CBD market, but it is tightly held by institutions and wealthy private people."
He says global investors looking at New Zealand are mainly from China, but European and Asian funds are also taking a view. "Auckland is now regarded as an international city and is very much on their radar."
Less obvious local attractions, says Richards, are activities, such as fishing. "On a recent trip Savills's organised for some Asian investors, they caught 15 decent sized snapper 200 metres from Princes Wharf. They couldn't believe they could catch fish with a close-up of Auckland city in the background."
Another bonus to that trip was watching at close quarters an inner-harbour boat race for the Volvo Round-the-world yachts.
He says another plus for New Zealand is the chance to buy a high-end residential property. "It is an enticement for them to eventually settle in New Zealand," Richards says.