Dexus upbeat on unlisted property returns

Dexus upbeat on unlisted property returns

4 August 2017

Dexus has just released their Australian Real Estate Quarterly Review Q3 2017, with a focus on the healthy returns being experienced by unlisted commercial property.

According to the report, unlisted property returns improved in the June quarter, delivering 12.0% for the year, second to equities on the asset class league table.

In a relatively subdued economy, positive business confidence and firming jobs growth bodes well for occupier demand over the next 12 months in the office, industrial, and retail sectors.

Jobs growth in Australia has firmed over the past six months, with Victoria by far the strongest of the States.

Dexus General Manager of Research Peter Studley told The Urban Developer that investors in office and industrial property have experienced strong investment returns.

“On average Australian wholesale property funds returned 12.0% in the past financial year,” he said.

Over FY17, the office sector outperformed with 13.8%, followed by diversified funds (12.6%) and Retail (11.3%).

According to Dexus the outlook for property returns in the next financial year also looks good given a lack of oversupply, positive business conditions and stable interest rates.

“The outlook for office markets in Sydney in the short term is strong, with withdrawals of older stock and a lack of new supply driving strong growth in rents,” says the report.

According to Property Observer, this view is also shared by valuation firm Herron Todd White, in their latest office market review.

Commenting on other state capitals, the Dexus report notes: “The Melbourne CBD office market is expected to benefit from the strongest employment growth in the country.

“The recovery in Brisbane is expected to continue to strengthen with the A-Grade vacancy rate falling to around 11%.

“The Perth office market has bottomed and the market is poised for recovery, however it will take time. Demand has turned positive after four years of contraction and vacancy is declining after peaking last year.

Meanwhile, Dexus believes that industrial markets on the east coast are experiencing solid take-up, leading to growth in rents in some parts of Sydney and Melbourne.

In addition, the retail sector is providing healthy returns on average, showing that well managed shopping centres are resilient in a very competitive retail environment.

Nevertheless, the report cautions that while the short-term outlook appears positive, property markets are cyclical, so investors should allow for some tapering of capital growth in the medium to long term.

Meanwhile, the latest Quarter Time Report from Savills, claims that disparities between the capital city markets may be starting to normalise.

Savills Head of Capital Strategy and Research Chris Freeman told The Urban Developer: “Forward indicators such as professional job advertisements showing the strongest rebound in Adelaide (up 13.3%), Perth seeing compression in yields offset the soft rental market as the market nears a floor and Brisbane showing rental growth driven by a ‘re-centralisation’ to the CBD highlight investment drivers for these markets.”

In total, the report detailed $14.4 billion of major sales activity ($10m+) over FY-17 and 1.3 million square metres of major leases greater than 1,000 square metres.

Sale volumes were down from the $18 billion record set in FY-16, but remained well above the decade average, led by foreign investors that were responsible for approximately 50% of total acquisition volumes during the year.