Auckland property yields remain attractive, finds Asia Pacific analysis

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Prime office and industrial properties in Auckland continue to represent good value despite the global economic impacts of Covid-19, according to a new regional analysis of Asia Pacific markets.

The report from Colliers International – titled Asia Pacific Real Estate: Still Good Value in a Changed Worldcompared property yields with other asset classes.

It found low or negative yields on government bonds continue to make property yields more attractive in Asia Pacific’s developed markets, including Auckland.

Richard Kirke, International Sales Director with Colliers’ New Zealand Capital Markets team, says two key factors are impacting the values of Asia Pacific investment assets in general.

“The first factor is the recession caused by Covid-19, which could peak in Asia Pacific during the second half of 2020.

“The second is record low interest rates – the result of a decade of loose monetary policy and recent emergency rate reductions.”

Kirke says most Asia Pacific markets will record negative real GDP growth in 2020.

“However, although uncertainty is high, the recovery that is already starting in China should spread gradually to the rest of Asia Pacific over the second half of 2020, with a sharp rebound in growth likely in 2021.

“With China now the world’s largest economy on a purchasing power parity basis, it has the potential to pull not only the region but the world out of recession.

“Another silver lining to the Covid-19 recession is that recovery should not push up interest rates.

“Over the past year, central banks in Asia Pacific have either held policy short-term interest rates at already low levels or reduced them further, including New Zealand.

“At the same time, interest rates are significantly higher in Asia Pacific’s emerging markets. As a result, developed property markets such as New Zealand look safer than emerging markets in the present environment.”

Ian Little, Associate Director of Research at Colliers New Zealand, says very low interest rates in Asia Pacific’s developed markets have pushed up bond prices.

“This reduces bond yields, reduces the risk-free rate used in the capital asset pricing model of equity values, and moderates upward pressure on the capitalisation rates used in commercial property.

“Compared to low or negative yields on government bonds – and the possibility of falling dividend yields for equity markets – the yields offered by real estate assets in Asia Pacific markets look attractive.”

In the premium office sector, Auckland has among the highest yields in the region with average yields at 5.8 per cent which provides an attractive yield spread of approximately 5.0 percentage points when compared with the risk-free alternative of New Zealand 10-year government bonds. This is the highest in the 10 major APAC cities tracked by Colliers International.

Auckland’s logistics and industrial sector is also attractive, with yields of 5.6 per cent, compared with a yield spread over 10-year government bonds of 4.8 percentage points.

“These property yields remain attractive to global investors given the relative affordability of prime office and industrial stock compared with the larger developed Asia Pacific markets.”

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Richard Kirke

Director | Capital Markets

Auckland CBD

Richard is responsible for the promotion of New Zealand property to international investors, leveraging of his relationships developed in executive positions during his near 8 years in Hong Kong, as well as assisting to grow the company’s nationwide Rural and Agribusiness agency capability.

Richard began his real estate career in 2004 with CBRE, in the five years he spent with them (before leaving to run Colliers Hong Kong business in 2008) he was involved in many notable transactions including the sale of the Lion Nathan site in Newmarket for $162m, the sale of the GE & BNZ Britomart properties on behalf of Manson’s to the German fund HIH and portfolio sales, including the successful auctioning of 16 National Bank Branches across New Zealand.

During his time as MD of Colliers Hong Kong he was involved in the sale of 50 Connaught Road on behalf Apollo Group (a New York based Hedge Fund) to the Agricultural Bank of China for $US632m.

Richard was the Managing Director of Colliers Hong Kong office for six years from 2009-2014. During this time he was an active participant in several high value transactions and developed broad relationships with both Asian investors and colleagues across the region.

In late 2014, Richard agreed to run CBRE’s Asia Pacific Capital Market business, including their Capital Advisory (Real Estate Investment Banking) business, this further added to his knowledge of real estate investors, particularly in greater Asia.

As a senior executive of Colliers for 6 years in Hong Kong, Richard has strong personal relationships with Colliers personnel across the globe.

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Ian Little

Associate Director | Research

Auckland CBD

My Colliers partnership priorities focus on supporting the New Zealand franchise network through the provision of research and thought leadership reports, articles and presentations. I draw on over 30 years of experience in the property market, gained in both the UK and New Zealand to my role enabling me to assist a broad range of clients and internal stakeholders. I am a member of the Royal Institution of Chartered surveyors. I am a regular presenter on current market conditions and future trends to the media, clients and various interest groups.

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