Commercial property investors will continue to benefit from the positive investment climate says the Australian Real Estate Quarterly Review Q2 2018.
“Real estate remains in a ‘sweet spot’ where positive occupier demand and a relatively steady cost of capital continue to support investor returns,” said by the General Manager (Research) of a property management firm.
“Capital markets are relatively stable, with bond yields and borrowing costs remaining at historically low levels”.
“These factors are extending the property cycle,” he added.
They also provide the additional promise of rental growth across most sectors and markets, notes the report.
“Unlisted property rewarded investors with a higher return than both equities and fixed interest investments over the year to March 2018, delivering a total return of 12.7 per cent,” he said.
Office funds provided the highest return with 15.0 per cent for the year, followed by retail with 12.0 per cent. Industrial and diversified funds also delivered double-digit returns.
Office returns are being supported by strong rental growth in Sydney and Melbourne which is leading to solid capital gains.
As the cycle moves on over the next two years, and Sydney and Melbourne’s rental cycle matures, the capital growth prospects for Perth and Brisbane will improve on a relative basis.
“Business confidence and consumer sentiment are both above the average of the past three years which bodes well for occupier demand,” said by a General Manager for Research.
According to a property management report, the outlook for industrial demand appears solid given that population growth and infrastructure investment are supporting economic activity.
Sydney, Melbourne, and to a lesser extent Brisbane, are best placed to benefit.
E-commerce is emerging as a possible longer term demand driver as online sales expand at double digit growth rates, and online retailers and fulfilment providers seek to increase scale.
The outlook, however, for retail rents is subdued in the short to medium term, reflecting high occupancy costs and poor retail margins.
Conditions in the household sector are relatively slow given low wages growth and high household debt levels. Hence the outlook for the residential sector is also more subdued.