Amazon risk less than feared for retail assets

An analysis of U.S. data presented by Property Council and MSCI, suggests the impact of Amazon and e-commerce on retail asset returns might be less than often assumed. In fact, certain segments of the industry could be set to benefit.

MSCI Vice-President Research, Bryan Reid says while total property income returns in New Zealand are softening, at 6.7% they are still some of the highest in the world.

“Auckland office and industrial properties continue to lead the market with the strongest returns and there are signs that Wellington assets may be stabilizing after recent underperformance following the Kaikoura earthquake.”

Mr Reid says that with the continued growth of e-commerce and the expected arrival of Amazon in Australia, there are concerns that retail assets will be negatively impacted. However, analysis of U.S. figures finds otherwise

“While there was some disruption to parts of the retail sector, we found that despite the rise of e-commerce, retail returns have been similar to non-retail returns in recent years.”

“And despite several high-profile retail failures, we’re also seeing signs of ongoing renewal in the sector.”

Chief Executive of Property Council, Connal Townsend says that the rise of e-commerce presents significant opportunities for New Zealand’s industrial property sector.

“Increasing e-commerce is seeing industrial property transformed into the nerve centre of our growing international online economy as logistics, storage and transport centres for goods being shipped to and from international markets.”

“Industrial has always been the steady performer in the New Zealand market, but I see that role becoming even more central to our property sector moving forward,”

“That presents significant economic opportunities for regions strong in industrial property such as Bay of Plenty, Waikato, Canterbury and non-CBD Auckland.”

Over the year to September 2017, direct property achieved a total return of 9.0%. outperforming listed real estate, broad equities, and bonds. Total returns are down from 12.8% at the same time last year as the pace of capital growth has slowed and income returns have compressed. Auckland continued to be New Zealand’s strongest performer.

The Property Council, MSCI property market update, released six monthly, measures property performance across New Zealand and international markets and examines emerging trends and issues affecting the sector.

 NZ Q3 2017 results notes

• Over the year to September 2017, direct property achieved a total return of 9.0%. This was higher than listed real estate, broad equities, and bonds.
• Total returns are down from 12.8% at the same time last year as the pace of capital growth has slowed and income returns have compressed.
• Auckland office and industrial properties continue to lead the market with the strongest returns.
• Performance in Wellington remains weak, especially for office assets. However, there are signs that returns may be stabilizing in that market a year after the Kaikoura earthquake.
• Despite several years of yield compression, income returns in New Zealand at 6.7% are some of the highest in the world but there is evidence that income expectations are being squeezed.
• With the continued growth of e-commerce and the expected arrival of Amazon in Australia soon, there are concerns that retail assets will be negatively impacted. However, an analysis of U.S. data, suggests that the impact on retail asset returns might be less than often assumed.

 

About Property Council New Zealand

Property Council is a member-led, not-for-profit organisation offering a collective voice for the commercial property industry. Our members include owners, investors, managers, and developers of office, retail, industrial and residential properties, central and local government agencies and other property professionals. Our branches throughout the country represent some of the largest commercial property portfolios in Auckland, Waikato, Bay of Plenty, Wellington, and the South Island and Otago region, the value of which exceeds billions.  We have an interest in all aspects of the built environment, and promote sound policies and requirements that benefit New Zealand.  For more information visit www.propertynz.co.nz.

 

About MSCI

For more than 40 years, MSCI’s research-based indexes and analytics have helped the world’s leading investors build and manage better portfolios.  Clients rely on our offerings for deeper insights into the drivers of performance and risk in their portfolios, broad asset class coverage and innovative research.  Its line of products and services includes indexes, analytical models, data, real estate benchmarks and ESG research.  MSCI serves 99 of the top 100 largest money managers, according to the most recent P&I ranking. For more information, visit www.msci.com