KEY POINTS:
Colliers International has launched its latest commercial portfolio containing 63 properties worth more than $370 million at a time when impressive returns are pushing up the demand for quality investments.
While the finance sector is clearly facing problems, the latest figures from the Property Council's investment performance index
show that commercial property investors received a record average return of 24 per cent in the year to June 2007.
The national portfolio comes on to a market that continues to be short of quality investment opportunities, says Peter Herdson, Colliers International's sales director.
The extraordinary returns illustrated in the council's index show not only continuing robust income returns, but some substantial increases in capital value typical of a market that is performing near its peak.
The council index pools the income and valuation data from major investors and records in a time series of the performance across all sectors of properties worth more than $6 billion.
Alan McMahon, Colliers International corporate services director, who is also chairman of the council's index governance committee, says this country's shopping centres are the top category in terms of performance over a one-year and 10-year period.
The two other retail categories, New Zealand bulk retail and New Zealand retail, typically supermarkets and individual shops, were second and third over 10 years.
When the index's medium-term performance is studied, the resurgence of the office market is evident, says McMahon.
Wellington's CBD office recorded a stellar return of 29 per cent for the year to June and for the past three years the annual return has been more than 25 per cent.
The industrial market, by comparison, tends to perform more consistently, illustrated by its 15.8 per cent annualised return over five years compared with 16 per cent over one year.
Its lack of volatility in comparison with retail and office investment is an attractive buying incentive for many investors, says McMahon.
Direct commercial property investment has also outperformed the NZX market and the property companies within it. In the year to June, NZX investors received a 20.1 per cent return and listed property companies returned 21.7 per cent.
The question most investors are asking is, whether the high returns from property investment can be sustained in a slowing economy?
McMahon says investment demand will remain strong but in some categories the rate of capital appreciation will slow in the next year.
There is still strong demand from tenants across all sectors for high quality, well located property that will help maintain rental growth, a key component of total return.
Herdson says the challenge for developers is to try and satisfy, as far as they can, the huge demand for property investment from New Zealanders and overseas investors while not overestimating the rents that tenants can pay.
Among the properties in the national portfolio are several Auckland retail investments.
Retail investments are always attractive to large investors and to mum and dad investors, Herdson says.
Three particularly good properties spread from Henderson to Manukau will give investors a choice in a sector where it has been difficult to source a ready supply of investment properties as retailers ride the spending boom of the past five years.
Herdson and Colliers agent John Green are selling the 1200sq m Noel Leeming store within the Lincoln Centre, near Henderson. The centre was built in the late 1990s and anchor tenants include The Warehouse, Spotlight, Freedom Furniture, Warehouse Stationery and Bond & Bond.
Noel Leeming has been a tenant since 2000, recently renewing its lease for another six years until 2013. The property has a net rental of $247,000 a year.
The store will be an attractive investment as Lincoln Rd is a tightly held property market and it is difficult to buy any investments in the area at all, particularly those that have a blue chip tenant, says Green.
On Broadway at Newmarket, New Zealand's premier retailing strip, Green and New Zealand director John Goddard are selling a refurbished Westfield building containing retail tenants Valley Girl, an Australian brand, and Bivouac.
Westfield is contemplating further development at its flagship 277 shopping centre across the road and the property is surplus to its needs.
The two shops front on to Broadway and have rear access to Nuffield Lane. They sit alongside Pumpkin Patch, which is part of the recently developed Newcrest group of shops containing ASB, BNZ and adidas.
Green says the area has one of the highest traffic flows in New Zealand and is Newmarket's favoured shopping area, as it is anchored by 277 and the new upmarket Nuffield St precinct containing 29 shops.
Valley Girl has signed a new five-year lease and Bivouac renewed on a six-year lease in September last year. Net rental for the building is estimated at $295,000 a year.
The property is on leasehold land that was railway property until the Crown sold it.
The 20-year ground lease is perpetually renewable and has five-yearly rent reviews.
Green and Goddard are also selling Westfield's Manukau cinema complex operated by SkyCity. Westfield is integrating the eight cinema complex into its Manukau Shopping Centre and expects to have left the property by September next year.
The 1.5 hectare site in four titles with a 1990s 3460sq m purpose built cinema complex has Manukau City Council business four zoning.
It will be sold with a long settlement that gives a new owner time to plan redevelopment of the site and apply for resource consents.
The single level, high stud cinema building covers only about 22 per cent of the site and Green says it will be suitable for retail, office or showroom development.
Part of the original property will form the new SH20 north-bound motorway on-ramp and, as a consequence, 3705sq m of land that contained the cinemas southeastern car park has been swapped for 3800sq m of adjoining land on the southern boundary.
There is a shortage of good, well zoned development land in Manukau and the existing building could easily be incorporated into a new development.