Research
Sound investment decisions require an in-depth understanding of real estate markets. To that end, our in-house research team is an integral part of the decision making process. The research team tracks economic conditions and forecasts real estate market performance in all major commercial, retail and industrial property markets nationwide. Some of our research articles are published here:
Australian real estate quarterly - Q3 2010
Is the recovery still on track?
Global uncertainty has combined with a flat spot in the Australian economy to dampen confidence in the Australian real estate recovery story. We anticipate relatively slow leasing demand (office, industrial and retail) in the current calendar year, with demand to strengthen in 2011.
In our view, real estate markets in Australia are well placed to handle a period of sub-par demand - simply because we also expect sub-par supply levels. 2010 remains a generally flat year for rents, and we are factoring mild growth in 2011 to reflect the risk of a patchy leasing market.
Rent growth over the next two years is expected to variously come from a steady reduction in availability, falling incentives, a catchup of market rent to economic levels (required to make new development viable), and rising land values and construction costs (lifting the rent required for development).
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Australian real estate quarterly - Q2 2010
Reality check on the road to recovery
The road to recovery was always going to be bumpy, and we are now entering one of those potholes. While volatility in the financial markets and sovereign debt issues in Europe add to global risk, it seems unlikely that these would seriously derail the Australian economy given its solid fundamentals. However, the short term growth outlook for the economy is likely to be constrained by rising interest rates and a stagnant household sector.
In our view the broad recovery story for Australian real estate markets remains intact over a three year horizon, with the main question being the pace. The prospect of firming occupancy markets and upside in values is creating opportunities for investors - including buying sites, participating in developments and buying assets where some value can be added by leasing into a strengthening market.
This report provides a view on the current investment climate and the implications for investors.
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Australian real estate quarterly - Q1 2010
The key theme this quarter is the stabilising of property values and emergence of some positive leading indicators. Australian real estate markets are moving into a recovery phase. Most of the leading demand indicators, including confidence and employment, have turned positive, and the transaction market is waking from it’s post GFC slumber. Global headwinds and constrained debt markets are expected to slow rather than stop recovery.
In occupancy markets, enquiry levels are beginning to improve. While cost control is a constraint to leasing in the short term, an increase in tenant profitability is expected to be a positive factor for real estate markets from late 2010.
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Australian real estate quarterly - Q4 2009
As the cycle moves from contraction to recovery, opportunity appears to outweigh risk. Recession has been avoided in Australia and economic indicators are firming - albeit we are cautious about ongoing risks in the global economy. Although rents are weak, occupancy risks appear relatively modest in most markets. Major players still have capital management issues but longer term the issue of weight of money chasing a finite amount of real estate stock seems likely to re-exert itself. Risk premiums should decline as the influence of the GFC wears off.
We expect upside in values from 2010 onwards as growth expectations are revised upwards. However, initially such gains may be tempered by low rents, a persistently high cost of capital and the steady selling of secondary assets by players still beleaguered by debt. Given low levels of new supply, and future upside on the demand side, risks in 2010 are far less than they were in 2007 - the peak of the cycle.
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Australian real estate quarterly - Q3 2009
An outbreak of cautious optimism - The gradual shift from uncertainty to confidence has the potential, in itself, to promote some improvement in credit markets, asset pricing and in the decision making of users of property space. But the key for real estate markets is whether a increase in confidence can translate to a sustained improvement in fundamentals.
Small steps for the transaction market - A slight up-tick in Q209 transactions might be sign of volumes bottoming out. However, to put this in context, activity levels have been relatively constant for the past six quarters at levels about half what they were prior to the GFC. Even so, the planets are aligning as values re-adjust, and we foresee increasing sales volumes through FY10.
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Australian real estate quarterly - Q2 2009
Despite a glimmer of hope that the global economy will stabilise and begin expanding in 2010, property markets still have a long hard road to travel. We often get asked 'when will the market recover?' to which the answer is that different parts of the property market will recover at different times.
The order of events, or direction of the current cycle is following a very similar patter to past recessions and slowdowns. The depth and duration are less certain, but by using past cycles as a guide, we can make judgements about what may be in store.
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Australian real estate quarterly - Q1 2009
The property sector is returning to basics in focusing on core activities, debt repayment and secured tangible sources of income. As the economy slows in 2009, the maintenance of income will become a vital element in the return to investors, both in recurring yield and through the effect of vacancy on value.
This report looks at occupany risk from both a corporate tenant perspective and property fundamentals.; It also covers the latest trends in rents and yields.
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Australian real estate quarterly - Q4 2008
The financial crunch is a serious feature of the current climate. However, the broad trends are typical of a once in nine year property cycle - characterised by weaker demand, a drop in construction, re-adjusting property values and - in time - a recovery.
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Australian real estate quarterly - Q3 2008
Real estate markets face a challenging year given high interest rates and the prospect of a slowing economy. Capitalisation rates for externally valued assets within listed vehicles are reported to have moved out by 0.25% to 0.5% in the six months to 2008 on average. We anticipate a further rise.
The significant lift in listed property yields does not imply an equally large lift in yields on the underlying property. A-REIT yields are around 150 basis points above the long-run spread over real bonds, and direct yields are only 50 basis points below.
In the current period investors will be rewarded by being diversified and by investing in high quality assets. In a tough environment the key for managers will be to focus on keeping existing assets fully occupied and prudently setting up for the next growth cycle.
A majority of the poor A-REIT performance in FY08 can be explained by similar poor performance in the stock market at large. The next most important factor is management of debt.
We’ve recently seen a seismic shift in the investment climate. While FY08 was characterised by rising interest rates, a high AUD, and falling sentiment, FY09 will be the opposite - falling interest rates, a lower AUD, and in the year ahead, a lower cost of capital for both debt and equity. For investors and managers in real estate, cash is king - as is quality and diversification.
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Australian real estate quarterly - Q2 2008
After an extended period of strong performance Australia’s real estate markets have entered a more challenging stage of their cycle. Key themes are:
- Tight credit conditions and financial market volatility continue to impact the supply of capital to real estate investments and developments
- While financial conditions are tougher than usual, they are typical of a maturing economic cycle and should alleviate over the next year
- Over the next two years real estate markets are likely to feel the influence of slower household demand, weaker employment growth and cost control by corporates
- This will mean weaker transaction levels, weaker construction levels, and in many cases a re-adjustment of valuation criteria
- With regard to downside risk, the current cycle has much more in common with the mild 2001 cycle than the more serious slump of 1991
- Investors will be rewarded by a focus on prime quality and location
- Risk is greater for secondary assets such as those in poor locations, B&C grade office buildings, industrial sheds more than 15 years old, small suburban shopping centres and bulky goods
The coming short term re-adjustment can be viewed in the context of a positive long term outlook for Australian property based on structural changes such as solid population growth, growth in Chinese/Indian/Asian demand for resources, infrastructure investment and expansion in superannuation funds.
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Australian real estate quarterly - Q1 2008
The global debt market meltdown and equity market sell-off of recent months has generated a lot of uncertainty in investment markets – including direct property markets which inhabit a unique place between the tumultuous financial markets and the more reliable real economy. DEXUS Property Group’s first report for 2008 outlines our view going forward.
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Australian real estate quarterly - Q4 2007
In this issue we look at recent trends in international markets for a lead on the Australian outlook. Over the past few years international real estate markets have provided investors with above average returns - averaging 15.5% globally in 2006. Many of the international trends have been similar to those seen in Australia (where the return was 17.5%).
Author: Peter Studley, Yolanda Torres & Phillipa Hagen
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Australian real estate quarterly - Q3 2007
The world finally appears to be waking up to risk. In recent weeks financial market jitters have resulted in a sell-off in equity and debt matters. The burning question is: will real estate catch the financial market flu?
Author: Peter Studley & Yolanda Torres
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Australian real estate quarterly - Q2 2007
Where are we in the cycle? Property markets are expected to continue in their growth cycle for the next two years based on continued growth in demand and a relatively stable global economy. Presently, demand is mostly keeping ahead of supply. Rents are showing good growth in most sectors and locations, with the exception of some industrial areas where supply is unusually high. Rent growth is supporting net income growth which in turn is resulting in cyclical falls in capitalisation rates.
Author: Peter Studley & Yolanda Torres
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Australian real estate quarterly - Q1 2007
A global economic mid cycle slowdown is now underway. GDP growth in Australia is now expected to be well below trend in 2007 at 2.0%. This is due to an anticipated negative impact of interest rate settings on the household sector. While a softer economy in 2007 will be felt in real estate markets, property income growth is expected to remain positive given a good corporate earnings and employment outlook and a lack of speculative building.
Author: Peter Studley & Nick Crothers
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Australian real estate quarterly - Q4 2006
This quarter we have taken a look at "offshoring" by Australian businesses and indentified the likely impact on future office demand. Large office asset sales lead the transactions list this quarter. Strong competition for investment stock is pushing office yields lower. Revaluations of office assets have boosted total returns for direct property, with Perth CBD and Brisbane CBD recording the best performance for the year to June 2006.
Author: Peter Studley & Nick Crothers
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Australian real estate quarterly - Q3 2006
Unlisted real estate returns pushed past 17% in the year to June 2006. Strong investment pressure has continued to bear down on retail capitalisation rates, despite a softening in fundamentals. At the same time, a perceived recovery in office markets has resulted in a sharp contraction in office capitalisation rates leading to upward revaluations in the 10% to 20% range for many office assets. Is this sustainable?
Author: Peter Studley & Nick Crothers
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Are we in a bubble? Drivers of performance going forward
In more than three decades of experience, we cannot recall a time when there was such pressure for investment in real estate at a time of relatively limited supply of stock. Strong capital inflows are being rewarded by strong investment returns. However, for all its perceived froth the current real estate cycle appears to be too mild to be called a bubble.
Author: Peter Studley, presented at the CIE Conference by Mark Turner
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Australian real estate quarterly - Q2 2006
Property investors in Australia are right to wonder what the latest interest rate rise means for them. What impact could it have on real estate pricing? As property investment yields remain firm, who will be the buyers of commercial real estate in a tightly held market? In this issue, we examine these factors and the outlook for property pricing.
Author: Peter Studley & Nick Crothers
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The key issues for investors in 2006
After a solid year of real estate performance in 2005 investors are entitled to look to the future and wonder what issues they will face in 2006. A sustained period of stable domestic economic growth, little volatility in borrowing costs and no foreseeable shocks lurking on the horizon mean that investors will be actively seeking opportunities to try to match last year's performance.
Author: Peter Studley & Nick Crothers
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Australian real estate quarterly - Q1 2006
Business expansion. Firm cap rates. Office recovery. More unlisted product. In this report we highlight these and other key issues that property investors will face in 2006. We also provide an outlook for each of the non-residential real estate sectors.
Author: Peter Studley & Nick Crothers
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Australian real estate quarterly - Q4 2005
After several years of above average returns, real estate investors are entitled to ask where we are in the investment cycle. The simple answer is that the various non-residential real estate markets are at different stages of their cycles. For investors, these differences create both opportunities and risks.
Author: Peter Studley & Nick Crothers
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Australian real estate quarterly - Q2 2005
For real estate pricing, the planets remain aligned - cheap debt, a low cost of equity capital and the likelihood of a soft landing in the economy. We see this situation being sustained in the short to medium term. The kinds of risks which could change the equation such as a recession or a spike in bond rates seem some way off.
Author: Peter Studley & Nick Crothers
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Opportunities in global office markets
The objective of this paper is to provide a framework for assessing opportunities within global office markets by analysing both the structural risks and cyclical outlook.
Author: Peter Studley & Nick Crothers
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The issues in managing a real estate portfolio
Times are changing, and so are the issues in managing a real estate portfolio. This paper highlights the role of sheer weight of capital in generating change within the real estate sector - with significant consequences for investors.
Author: Peter Studley & Nick Crothers
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Global real estate insights
Real estate markets around the globe are running with significant tailwinds behind them. Accordingly, returns have been solid relative to alternative assets. Looking ahead, there is still upside, but as the cycle matures and interest rates nudge up, the headwinds will begin to build. Improving fundamentals are likely to underpin relatively attractive real estate returns in 2005-06. At the same time, buoyant pricing and high liquidity make it a good time to sell non-strategic assets into strength.
Author: Peter Studley & Nick Crothers
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The key issues for investors in 2005
After a decade of solid real estate performance what are investors in direct real estate to make of current conditions? In many areas pricing is wound very tight and owners compete aggressively for stock. Investors are seeing a range of new unlisted products are well as a move offshore and intense consolidation in the listed sector. It is against this back drop that we outline the key issues for investors in 2005.
Author: Peter Studley
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The good times roll on - for property
After five years continuously rising real estate values, investors in non-residential property are entitled to ask whether they should be buying or selling in 2005. This report looks at whether real estate will continue to soar, run out of steam, or fall in a hole.
Author: Peter Studley
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As the cycle moves from contraction to recovery, opportunity appears to outweigh risk. Recession has been avoided in Australia and economic indicators are firming - albeit we are cautious about ongoing risks in the global economy. Although rents are weak, occupancy risks appear relatively modest in most markets. Major players still have capital management issues but longer term the issue of weight of money chasing a finite amount of real estate stock seems likely to re-exert itself. Risk premiums should decline as the influence of the GFC wears off.
We expect upside in values from 2010 onwards as growth expectations are revised upwards. However, initially such gains may be tempered by low rents, a persistently high cost of capital and the steady selling of secondary assets by players still beleaguered by debt. Given low levels of new supply, and future upside on the demand side, risks in 2010 are far less than they were in 2007 - the peak of the cycle.