Property investment — REIT* all about it
01 April, 2016
Open a New Zealand media publication, and it's unusual not to read something about the residential property market. Meanwhile, commercial property (i.e. office, industrial and retail property), which is benefiting from similar underlying themes, struggles to get the same attention. As a case in point, we suspect many of you are unlikely to have seen during the month that two of our property investments, Kiwi Property and Goodman Property, reported respectable revaluation gains for the year of around $175m-$180m and $135m respectively (approximately 7% and 6% respectively).
Property prices, both commercial and residential, are being supported in part by strong investor demand given the low interest rate environment and dismal returns being offered on other low risk alternatives, such as bank deposits. With expectations for further interest rate cuts in New Zealand and for interest rates to remain low for the foreseeable future, we expect investor demand to remain unwavering.
Commercial property (particularly prime Auckland assets) is also currently benefiting from strong underlying fundamentals; vacancy remains tight and market rental growth is respectable. The theme here again is not too different from that in the residential market, with population growth driving healthy occupier demand for commercial property. Despite the headwinds from dairy commodity weakness, the New Zealand economy remains a relative beacon of strength and we see limited risk that the flow of migration and occupier demand for property will reverse anytime soon.
Exposure to commercial property is attainable for many New Zealander's through investments in the listed property companies or alternatively via our Property & Infrastructure Fund where approximately 15% of our portfolio is invested in New Zealand listed property vehicles. Listed property companies provide many investment benefits which should not be overlooked by investors: diversified property and tenant exposure, contracted rental growth, high liquidity and management expertise (with the New Zealand listed property vehicles on balance exhibiting improving capital discipline over recent years).
* REIT = Real Estate Investment Trust