commercial property investment market · on australian commercial property during 2019 was mixed...
TRANSCRIPT
Commercial PropertyInvestment Market
m3property Summer 2020
3m3property2 Commercial Property Update
Investment market 2019Global economic uncertainty, trade wars, political turbulence
and share market volatility plagued 2019, but this has meant
historically low interest rates, the continued rise of e-commerce,
government spending on infrastructure and tax cuts. The impact
on Australian commercial property during 2019 was mixed and
this is expected to continue into 2020.
Australian property has been a beneficiary of offshore and local
investment demand as investors sought a safe haven and yield
in the absence of comparable returns from share markets and
historically low cash and bond rates.
Overall, office property in Melbourne and Sydney and industrial
property in Sydney, Melbourne and Brisbane were the
outperformers in 2019. Retail assets weighted towards non-
discretionary-spend tenancy profiles have fared best in a retail
market still adjusting to being part of a highly competitive global
market dealing with e-commerce headwinds and low household
consumption.
The office sector in Melbourne and Sydney continued to show
low vacancy and both rising rents and values have attracted
investor interest. Industrial too has been very positive in 2019,
driven largely by e-commerce, which has seen the best growth
in the sector for a decade.
Yields, which had appeared to have bottomed earlier in 2019,
have continued to firm across office and industrial markets
while retail yields witnessed some easing with standalone
supermarkets the best retail performer.
Office sees record high sales activityThe office sector has been the sector to benefit the most from
the low cost of debt environment over 2019 with sales activity
surpassing the 2018 year totals to reach a new record high,
since records commenced at m3property, of $23.17 billion
worth of sales (over $5 million in value).
Fundamentals varied across office markets but strengthened
overall. In many markets tenant demand witnessed the greatest
growth coming from the technology sector and co-working/
serviced office tenants.
The outlook for the office market is mixed in 2020. Vacancy is
expected to rise in Melbourne, Perth and Adelaide CBDs due to
new supply additions, despite solid demand forecasts. Sydney
and Brisbane CBDs are likely to see tightening of vacancy over
the year as withdrawals continue to keep net supply levels low.
Total returns are forecast to remain positive over the next 12
months, albeit varying by state.
Retail faces more headwindsThe retail sector has been challenged by low wages growth,
continued online retail competition and negative consumer
sentiment.
Sales activity was moderate over 2019 compared to recent
years, at $6.82 billion, with several transactions towards the
end of the year occurring at discounts to book value.
While it was a challenging year for retail property, many of
the owners have undertaken refurbishments of key centres
and activity in these refreshed centres has been positive.
Standalone supermarkets and hardware stores were the best
performers over 2019, with solid trading conditions keeping rent
growth positive and long-term leases keeping investor demand
strong.
Despite further tax cuts, another interest rate decrease and an
improving residential market expected in 2020, the outlook for
retail is still weak. The weak outlook is due to the impact of the
bushfires and the Novel Coronavirus (2019-nCoV) on tourism
to and within Australia and consumer confidence and spending
over the next three to six months.
Industrial sales activity down from record highSales activity in the industrial market was solid over 2019.
However, it didn’t quite reach the record heights achieved over
2018, with $5.25 billion worth of sales transacting over the year.
Land remains sort after in most states and the price of land has,
therefore, skyrocketed in many markets over 2019. Sydney led
the pack with growth of 18.5%.
The continued growth of online retailing has helped drive the
strong performance of the industrial sector making it arguably
the best performing of the sectors when looking on a national
basis. While overall growth is likely to slow over the next 12
months, it is expected to remain positive.
Yield OutlookWe expect to see some further tightening of yields into 2020
across well-located CBD office and industrial assets with long
WALEs. The lack of stock may also be a factor with landlords
holding tight to assets which continue to provide comparatively
decent returns.
Cautious sentiment towards the retail market and limited
investor demand for retail assets is expected to continue over
2020. Retail property yields will most likely be stable or continue
to soften, particularly for secondary assets, with values also
under pressure from declining income growth projections. We
expect an increase in investor activity and appetite for retail
assets with a capital value of less than $50 million supported by
the low cost of debt, however, investors for larger capital value
assets are at this stage unwilling to accept lower investment
return hurdles.
The office market nationally is likely to see yields tighten by
a range of 0-25 basis points over 2020. Despite vacancy
expected to rise nationally over the year, due to rising supply
levels, investor demand is likely to remain buoyant due to
Australian yields remaining attractive on an international basis
and in comparison to the cost of bonds and debt.
Industrial yields nationally are also forecast to tighten by 0-25
basis points over 2020 for prime space. This is due to the
gap between yields and bond rates and an expected further
decrease in the cost of debt over the year.
Source: m3property Research National Office Sales over $5 million (to end December 2019)
Source: m3property Research National Office Sales over $5 million (to end December 2019)
Source: m3property Research National Office Sales over $5 million (to end December 2019)
Industrial -13bp
Office-13bp Retail
+13bp
National property yield outlook, by sector
DISCLAIMER © m3property Australia. Liability limited by a scheme approved under Professional Standards Legislation. This report is for information purposes only and has been derived, in part, from sources other than m3property Strategists and does not constitute advice. In passing on this information, m3property Strategists makes no representation that any information or assumption contained in this material is accurate or complete. To the extent that this material contains any statement as to the future, it is simply an estimate or opinion based on information available to m3property Strategists at that time and contains assumptions, which may be incorrect. m3property makes no representation that any such statements are, or will be, accurate. Any unauthorised use or redistribution of part, or all, of this report is prohibited.
Kym Dreyer SA | Managing Director+61 8 7099 [email protected]
Zoe HaskettSA | Research Manager+61 8 7099 [email protected]
Key Contacts
m3property.com.au /m3property
Shaun O’Sullivan Retail | Director+61 3 9605 1082shaun.o’[email protected]
Amita MehraVIC | Research Director +61 3 9605 [email protected]
Casey RobinsonQLD | Research Director+61 7 3620 [email protected]
James Farrugia Industrial | National Director+61 2 8234 [email protected]
Ross Perkins QLD | Managing Director+61 7 3620 [email protected]
Jennifer WilliamsNSW | National Director +61 2 8234 [email protected]
Luana Kenny VIC | Managing Director+61 3 9605 [email protected]
Andrew Duiguid NSW Managing Director | National Director Office+61 2 8234 [email protected]
Katherine TambourasNSW | Research Analyst +61 2 8234 [email protected]
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