How New Zealand's OCR cut can lift commercial property value

One of the many great aspects of JLL Research is the REIS' long-term data series. It's ideal for identifying correlations and aligning key property metrics with other economic and property variables.

Examining Auckland CBD Office and Industrial Prime Capital Values against the REINZ HPI (House Price Index) and the CoreLogic HPI over the past 25 years reveals visual similarities, as shown in Figure 1. Pearson and Spearman Rank correlation tests show results ranging from 0.97 to 0.99 (with 1 indicating 100% correlation), showing a very strong historical relationship between these indices.

Figure 1: Auckland and Wellington CBD Office and Industrial Capital Value projections

Source: ASB Bank, Westpac Bank, CoreLogic, REINZ, JLL

While past performance does not necessarily predict future results, these strong correlations provide interesting insights. If the house price projections by Westpac and ASB Bank prove accurate, we may see an increase in Prime Capital Values for the CBD Office and Industrial sectors in the near future.

Capital Value is an important metric as it tracks both rents and yields. Given the potential limit to yield compression relative to interest rates, the projection suggests a possible rise in rents alongside a slight firming of yields in the short term.

Looking ahead, these historical correlations suggest that positive movements in housing indices could benefit commercial real estate values. However, it's crucial to consider sector-specific trends and the broader economic context when making decisions or forecasts. This is where JLL's Research and Consultancy teams can provide valuable insights and assistance.