Capital’s commercial property poised for high returns (DominionPost)

October 29, 2017

Commercial property is performing well around the country off the back of a strong economy, but Wellington is in a particular sweet spot, an economist says.

Kelvin Davidson of Infometrics said a combination of favourable factors could see investors in the capital enjoying returns of up to 17 per cent a year in the foreseeable future.

The quake-driven shortage of space was good for capital gains, but “income could be the real star,” he said.

Economic drivers like low unemployment and a lively retail scene were applying upward pressure on rents, putting returns in Wellington on par if not ahead of other strongly growing centres like Auckland, Tauranga and Hamilton.

“The thing about Wellington is it’s a pretty safe and steady market, not only for offices but also retail because you’ve got that base of public sector work which provides a pretty steady foundation for commercial space in the city… and those people spend money at lunchtime,” Davidson said.

According to Infometrics’ quarterly regional research, most of Wellington’s indicators were strong, including traffic flows, residential and non-residential building consents, house prices and car registrations.

Unemployment in Wellington was 4.6 per cent, as low as it’s been in the last six years, and those on Jobseeker Support fell in the year to June, in contrast with a modest rise nationally.

“Taking these indicators together, our provisional estimate is that Wellington City’s GDP expanded by 2.5 per cent in the year to June 2017. That is comfortably above the average of 1.9 per cent for the past decade. In other words, the demand-side of the commercial property market is strong.”

Following last November’s Kaikoura earthquake, quake-related restrictions meant space was in much demand and vacancy rates were very low, Davidson said.

Less than one per cent of prime office space in Wellington’s CBD was currently vacant, compared with Christchurch at more than 20 per cent, and Auckland at about 4 per cent.

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