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Wgtn commercial property market to remain subdued: KIP

BUSINESSDESK: Wellington's commercial property market is forecast to remain subdued for the next four years, Kiwi Income Property Trust says.

The capital's core central business district vacancy rate is 11.6%. The property investor forecasts the rate to remain above 11% until 2016. In Auckland the vacancy rate is 14% and is forecast to decline to less than 10% over the next four years.

"The net rental outlook in Wellington is not helped by increases in insurance premiums which are largely unrecoverable due to the gross structure of leases across the city," chief executive Chris Gudgeon told shareholders at the company's annual meeting.

"Activity in the investment market is also likely to be hindered by concern around seismic ratings."

Kiwi Income has committed to spending $35 million on earthquake strengthening for Wellington's Majestic Centre to achieve a "low risk" classification. Strengthening work started last month and will be progressively completed over the next two to three years.

The Auckland-based company is also reviewing its portfolio to secure a "low risk" earthquake classification across the remainder of its buildings. The programme will be rolled out over the next 10 years at a cost of up to $40 million.

The strengthening work relates to "buildings that in pre-earthquake days we were perfectly happy with as a legally compliant buildings – but now, with the new earthquake consciousness, we think would benefit from strengthening", Mr Gudgeon says.

The trust is "encouraged" that 85% of its properties are in the recovering retailer sector or in the Auckland office market.

In May, Kiwi Income posted an $89.2 million annual net profit from a $26.4 million loss a year earlier, reflecting an insurance payout on its PricewaterhouseCoopers building in Christchurch offset by property valuation cuts.

Its shares are currently down 0.5% trading at $1.09.