Savills 2020 property market outlook

Savills 2020 property market outlook

27 December 2019

As part of their end of year review, Savills believes that Australia’s property market has stood tall, demonstrated resilience and will continue to attract foreign capital in 2020.

According to Paul Craig, CEO of Savills Australia and New Zealand, “The property market in 2019 has fundamentally stood tall and demonstrated its resilience. This low for longer interest rate environment means real assets and in particular real estate, will continue to be well sought after as investors chase yield.

“In particular, Australia will continue to attract foreign capital supported by a cheap AUD, positive yield spreads to debt enabling positive funding from leverage and the lag effect of cap rate compression due to some skepticism of further runs in yield as we hit all-time yield lows/highs in valuation.”

Commenting on the commercial office market, Mr Craig said, “2020 will see the commercial office sector continue to compress, supported by limited supply and developer discipline as CBD tenants begin to push their boundaries of space capacity.

“A lot of our clients will continue to favour the Sydney and Melbourne CBD, North Sydney, Parramatta and interestingly are beginning to think Perth has reverted too far and may provide risk opportunities. As with Perth, Brisbane could also provide risk opportunities as vacancies contract and new development remains scarce.

“Industrial, but more so logistics, will continue to attract capital as it continues to support the e-commerce thematic. We are concerned about the low growth in rents, however the inbuilt rent bumps of 2-3% will support overall.

“Retail is the interesting asset class and perhaps with tough retail sales turnover, a forgotten asset class with opportunities. With centres such as Marion in SA and Booragoon WA recently trading relatively easily for their financial size and demand for non-discretionary retail still sought after (especially by private investors and syndicates), there remain no forced sellers in response to financiers requirements, although there have been funds withdrawal demands that may have prompted transactions.

Savills believes the hotel and pub sector will remain strong in 2020. The Savills Hotels Australian team has transacted over AU$1.7 billion worth of hotels, pubs and leisure real estate and valued over AU$4 billion of hospitality assets in just the past 12 months, highlighting the global and local appetite for this asset class.