New Zealand CRE Performance Slides

New Zealand commercial real estate has suffered a collapse in performance compared with just 12 months ago. The MSCI/Property Council of New Zealand Annual Property Index posted a total return of just 2.9% for the 12 months to September, down from the 20.6% recorded in September 2021. Furthermore, it posted a quarterly total return of -0.4% and saw cap rates at an all-property level expand from 5.1% to 5.6%.

The sharp decline in fortunes for the industry was driven by capital growth, recording the first annual decline since March 2020. The fall of 2.1% is the worst recorded annual capital growth since June 2010, indicating that the mounting macroeconomic pressures the world is under are having a similar initial impact on commercial property to those of the GFC.

Industrial was the best performing sector, as it has been for some time now; however, performance was considerably lower than 12 months ago. Total return recorded 7.7%* for the 12 months to September compared to 31.0% in Q3’21. In addition, capital growth fell to the lowest level since September 2014 at just 3.7%: a far cry from the 25.1% recorded 12 months ago.

Retail was the worst-performing sector, recording a total return of -0.9% compared to 15.2% 12 months ago. The deteriorating performance was driven by the most severe decline in capital growth for over 12 years to record -6.9%. Shopping centres were one of the biggest drags on the retail sector, recording capital growth of -15.3%.

The office sector managed to avoid falling into negative territory on a total return basis, recording 0.3%. However, capital growth declined 4.6% for the 12 months to September 2022, a complete reversal of the 4.4% recorded in Q3’21.

*All asset level as opposed to standing investments due to a lack of valuations.