MARKETVIEW
NZ Prime Property Performance Index, Q2 2015
Prime markets driven by
increasingly divergent trends
AKL RENT
WGTN RENT
CHCH RENT
OFFICE RENT
RETAIL RENT
IND RENT
2.2%
0.0%
-0.1%
0.5%
2.7%
0.9%
This publication tracks the current and historic rent
and yield performance of selected Prime office, retail,
and industrial property submarkets in Auckland,
Wellington, and Christchurch. Its purpose is to provide
a useful summary enabling the comparison between
the property market performance of the cities and
sectors as assessed by CBRE.
In the Christchurch office market, our focus is now
back on
the CBD, with a number of new or
refurbished Prime office buildings having been
completed, and others coming on stream in 2015/16.
KEY TOPICS
• Prime property performance currently reflects the
diversity of underlying regional market drivers.
• Auckland rents have continued to grow, with
Wellington and Christchurch comparatively stable.
• Prime CBD retail rental growth increased markedly,
although Prime industrial remains top performer.
• Buoyant investment market conditions and positive
market sentiment in Auckland and Wellington.
• Christchurch remains stable overall as market
continues to assess office supply pipeline.
MARKET SYNOPSIS
Overall performance across Prime markets
was mixed in Q2, with some sectors/regions
seeing substantial movements in rents/yields
and others indicating little reason for
change. On balance at a nationwide-level, the
market continues to move in a positive
direction and while underlying fundamentals
remain sound in most instances, unique
characteristics are playing themselves out
differently between the regions and the
various property sectors.
Q2 2015 CBRE Research
For instance, Auckland notched up respectable
growth in Q2 with market rents across all sectors
experiencing healthy gains and Prime office
yields firming significantly. The pace of rental
growth appears to have accelerated somewhat
over the past three months and although this was
largely influenced by a recent jump in Prime CBD
retail rents, prime office and industrial rent
growth was also robust.
In comparison, prime rents in Wellington were
largely stable q-o-q, however the market looks
healthier than it has for some time. Recent sales
activity suggests Wellington is becoming a more
vibrant market place, with yields continuing to
firm. Such conditions are not universal however,
and some submarkets within Prime, particularly
the lower New Building Standard (NBS) rated
stock, continue to struggle on the occupancy and
rental fronts.
Christchurch CBD office rents continue to be
driven by the design-build market and current
proposals that we are aware of fit our assessment
of market parameters. While the fall in office
rents appears to have stalled for the time being, it
will be the amount and timing of new supply that
will ultimately determine the extent of any
further declines. In the prime industrial market,
reports of incentives have become more
frequent, although at this stage, the impact of
this on rents has been marginal. Nevertheless,
the predominantly private industrial investors in
Canterbury continue to see the opportunities, as
yields continued to firm.
© CBRE Ltd. 2015 |
1
MARKETVIEW
PRIME PROPERTY PERFORMANCE INDEX, Q2 2015
C O M P A R A T IVE R E N T A L P E R F O R M A C E
Chart 1: Composite Market Rent Index by City
Index June 2012 =100
120
Growth in Auckland rents picked up Q2 2015,
with Prime CBD retail up 5.2%, reflecting both
the scarcity and ongoing enquiry for prime sites.
Prime office and industrial rents were also up
1.1% and 1.4% respectively over the quarter. In
both the Prime office and Prime CBD retail
markets, rents grew most strongly in Core CBD
locations such as Shortland Street, Queen Street,
and Downtown. In comparison to the drivers of
rental growth over the past 18 months, these
increases are underpinned less by incentive
reductions and more by face rent growth. Prime
industrial rents also appear to be on the move,
with Airport Corridor and East Tamaki seeing the
largest quarterly net effective rental gains .
115
110
105
100
95
Auckland
Wellington
Christchurch
Source: CBRE Research, Q2 2015.
Chart 2: Composite Market Rent Index by Sector
Index June 2012 =100
120
In comparison, the overall Wellington composite
rent index was stable in Q2, reflecting a
combination of factors. We continue to hear
reports of cost sensitivity among office occupiers
and despite an active leasing market, a few
impending lease expiries have contributed to
existing rental benchmarks not being exceeded.
Prime CBD retail in the capital has also been
active, reflected in the 2.3% increase in Q1 and
although current leases have continued around
these levels, we are not ruling out the possibility
of further increases before year-end. A slowing
down of occupier activity in the Prime industrial
market has seen rents remain relatively stable for
the past three quarters.
115
110
105
100
95
Office
CBD Ret ail
Industrial
Source: CBRE Research, Q2 2015.
Chart 3: Market Rent Index by Submarket
125
Q2 2015 CBRE Research
120
Index June 2012 =100
Christchurch Prime rent growth was muted in
Q2, following the 2.1% decline earlier in the year.
This was due to declining office rents, with
indicative Prime industrial rent growth levelling
off after the 3.6% increase at the end of last year.
In Q2 however, the dynamic appears to have
shifted the other way, with rents for Prime CBD
office space remaining stable and industrial
down -0.2%. While office leasing continues to be
active, a lack of urgency may be emerging, as
those uncommitted occupiers consider their
options. Incentives and rental discounts are
slowly returning to the industrial market, seeing
Prime rents soften.
115
110
105
100
95
90
85
Auckland Office
Wellington Office
Christchurch Office
Auckland CBD Retail
Wellington CBD Retail
Auckland Industrial
Wellington Industrial
Christchurch Industrial
Source: CBRE Research, Q2 2015.
© CBRE Ltd. 2015 |
2
MARKETVIEW
PRIME PROPERTY PERFORMANCE INDEX, Q2 2015
C O M P A R A T IVE Y I E L D P E R F O R M A C E
Chart 4: Composite Yield Change by City
20
0
Basis Point Change Since June 2012
The Auckland Prime yield composite compressed
further in Q2 to 7.11%, driven predominantly by
the office sector, where indicative Prime yields
firmed 18 bps q-o-q. Prime office investments,
especially those with income-enhancing retail
components, continue to be highly sought-after
by both local and international investors. At
present, there is a significant amount of demand
for such Prime CBD office assets, but availability
remains tight. A similar picture is emerging in
the Prime industrial market, where indicative
yields firmed to 6.73%, with owner-occupiers
continuing to compete with investors for stock.
Prime Auckland CBD retail yields were
unchanged during the quarter, with evidence
supporting the current level remaining at 5.39%.
-20
-40
-60
-80
-100
-120
-140
-160
-180
Auckland
Wellington
Christchurch
Source: CBRE Research, Q2 2015.
Chart 5: Composite Yield Change by Sector
20
-20
-40
-60
-80
-100
-120
-140
-160
-180
Off ice
CBD Ret ail
Industrial
Source: CBRE Research, Q2 2015.
Chart 6: Yield Change by Submarket
20
0
-20
Basis Point Change Since June 2012
Yields for Christchurch Prime office properties
were unchanged in Q2 at 7.28%, although with
123 bps firming over the past 36 months, this
market is second only to Auckland in regards to
yield compression over this timeframe. Prime
industrial yields firmed to 7.00% indicative in
Q2, which in our view is driven as much by
market momentum as it is by exogenous factors.
Basis Point Change Since June 2012
0
Wellington experienced elevated levels of
investor activity in Q2, although, like Auckland,
this was concentrated around the office sector.
Indicative Prime CBD office yields have now
firmed to 7.86%. In general, and as would be
expected, yield firming has been more
pronounced in high-NBS rated buildings. We
continue to see Prime CBD office yields in
Wellington as being among the highest in the
Asia Pacific region, and to some extent recent
activity in the sector may indicate investor
recognition of this. In Wellington’s
Prime
industrial
market,
there
was
limited
transactional activity in Q2 upon which to justify
significant yield movement from prior levels.
Current parameters largely reflect our view that
many industrial landlords are happy to retain
existing holdings and for similar reasons, Prime
CBD retail yields were also unchanged.
-40
-60
-80
-100
-120
-140
-160
-180
Auckland Of fice
Wellin gto n Office
Christchurch Of fice
Auckland CBD Ret ail
Wellington CB D Retail
Auckland In du strial
Wellington Industrial
Christchurch Industria l
Source: CBRE Research, Q2 2015.
Q2 2015 CBRE Research
© CBRE Ltd. 2015 |
3
MARKETVIEW
PRIME PROPERTY PERFORMANCE INDEX, Q2 2015
Table 1: Composite Market Rent Index
Auckland
Wellington
Christchurch
Office
Retail
Industrial
Index at
Q4 2014
Quarterly
change
Annual
change
3-year
change
115.0
103.8
111.6
110.1
105.7
113.1
2.2
0.0
-0.1
0.5
2.7
0.9
4.7
1.2
-0.1
1.3
4.5
3.5
15.0
3.8
11.6
10.1
5.7
13.1
Source: CBRE Research, Q2 2014.
Table 2: Property Sector Net Effective Market Rents
Auckland Office
Wellington Office
Christchurch Office
Auckland CBD Retail
Wellington CBD Retail
Auckland Industrial
Wellington Industrial
Christchurch Industrial
Rent as at
Q4 2014
Quarterly
change
Annual
change
3-year
change
$383
$309
$385
$2,650
$2,186
$122
$83
$118
1.1%
0.0%
0.0%
5.2%
0.0%
1.4%
0.0%
-0.2%
3.8%
1.0%
-3.8%
6.6%
2.3%
3.6%
0.6%
3.4%
19.1%
4.1%
4.2%
9.1%
2.3%
12.2%
4.7%
19.0%
Source: CBRE Research, Q2 2014.
Table 3: Comparative Composite Yield Changes (bps)
Auckland
Wellington
Christchurch
Office
Retail
Industrial
Quarterly
Annual
3-year
change
change
change
-11
-3
-6
-8
0
-8
-34
-15
-33
-29
-3
-40
-124
-51
-114
-115
-29
-102
Source: CBRE Research, Q2 2014.
Table 4: Property Sector Yields Changes (bps)
Auckland Office
Wellington Office
Christchurch Office
Auckland CBD Retail
Wellington CBD Retail
Auckland Industrial
Wellington Industrial
Christchurch Industrial
Yield as at
Quarterly
Annual
3-year
Q4 2014
change
change
change
7.04%
7.86%
7.28%
5.39%
6.85%
6.73%
8.10%
7.00%
-18
-3
0
0
0
-8
-5
-9
-36
-18
-35
-6
0
-49
-13
-28
-162
-64
-123
-46
-11
-113
-48
-100
Source: CBRE Research, Q2 2014.
Q2 2015 CBRE Research
© CBRE Ltd. 2015 |
4
MARKETVIEW
PRIME PROPERTY PERFORMANCE INDEX, Q2 2015
D E F I N I TI ON S A N D M E TH OD OL OG Y
C H AN GES
FOL L OWI N G
TH E
C H RS TC H URC H
E A R TH QU AK ES
This report contains data for Prime (i.e.,
Premium and Grade A) properties in each sector.
The office and CBD retail sectors reflect
properties in the CBD of each city. The industrial
sector reflects each city’s main industrial
precincts.
Rents referred to in the report are quoted on a
net effective basis (i.e., reflecting the effect of
leasing incentives and outgoings). Yields are
initial yields based on market rent levels. The
rent and yield data presented are an indicative
assessment of net market rents and yields based
on our view of the market. These rents and yields
represent indicative averages for the various
market sectors and do not reflect the full range of
values or market evidence for any market sector
and is not necessarily applicable to actual leases
or properties. Readers should understand that
the range of actual rents and yields around the
averages shown herein can be considerable.
Given the extensive destruction to commercial
property in the Christchurch CBD, and the
subsequent closure of the city centre following
the earthquake in 2011, we discontinued
coverage of the CBD retail market in
Christchurch. For the office market, we switched
our focus from the CBD to the suburban market,
splicing the trends of the two markets together to
provide indicative historic rates of change preand post-earthquake. In light of the re-build’s
progress, we have refocused our analysis in this
report from the suburban to the CBD office
market as of Q3, 2014.
The composite city rental indices reflect an
amalgamation of the office, industrial, and CBD
retail property sectors, with each weighted to
reflect the underlying market composition upon
which it is based. The composite property sector
rent indices reflect an amalgamation of all cities
weighted by their respective market size.
Q2 2015 CBRE Research
© CBRE Ltd. 2015 |
5
MARKETVIEW
ASIA PACIFIC RESEARCH
GLOBAL RESEARCH AND CONSULTING
Zoltan Moricz
Head of Research, New Zealand
Level 14, Zurich House
21 Queen Street
Auckland
t: +64 9 359 5399
e: zoltan.moricz@cbre.co.nz
Nick Axford, Ph.D.
Global Head of Research
t: +44 20 7182 2876
e: nick.axford@cbre.com
Follow Nick on Twitter: @NickAxford1
Tim Wiles
Research Manager, New Zealand
Level 14, Zurich House
21 Queen Street
Auckland
t: +64 9 359 5336
e: tim.wiles@cbre.co.nz
Richard Barkham , Ph.D., MRICS
Global Chief Economist
t: +44 20 7182 2665
e: richard.barkham@cbre.com
Neil Blake, Ph.D.
Head of Research, EMEA
t: +44 20 7182 2133
e: neil.blake@cbre.com
Follow Neil on Twitter: @neilblake123
Henry Chin, Ph.D.
Head of Research, Asia Pacific
t: +852 2820 8160
e: henry.chin@cbre.com.hk
Spencer Levy
Head of Research, Americas
t: +1 410 951 8443
e: spencer.levy@cbre.com
Please visit the Global Research Gateway at
www.cbre.com/researchgateway
Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy,
we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and
completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be
reproduced without prior written permission of CBRE.