Growth cycle delivers strong unlisted property returns
Dexus Research today released the Australian Real Estate Quarterly Review Q3 2017, with the focus this quarter on the healthy returns being experienced by unlisted commercial property.
Investors in office and industrial property are experiencing strong investment returns. On average Australian wholesale property funds returned 12.0% in the past financial year.
Over FY17, the office sector outperformed with 13.8%, followed by diversified funds (12.6%) and Retail (11.3%).
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, while 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.
Industrial markets on the east coast are experiencing solid take-up, leading to growth in rents in some parts of Sydney and Melbourne.
The retail sector is also providing healthy returns on average, showing that well managed shopping centres are resilient in a very competitive retail environment.
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.