How is 2021 shaping up for the real estate sector?

In the latest edition of our quarterly research report, the Dexus Research team share their insights on the Australian economy and how property markets are forecast to respond.  

What can we expect in 2021?

The Australian economy is well positioned going into 2021 with fiscal stimulus translating to better than expected economic and employment data. While the pandemic risks are still significant, we expect the investment climate will turn more positive as the year progresses.

Key macro-economic take-outs

Our view is that:

• A vaccine roll-out in the first half of 2021 will help reduce the health risks of the pandemic but social distancing and some mobility restrictions will still be required
  
  
• The global economy will strengthen, with Australia and Asia Pacific countries leading the pack
  
  
• Australian economic growth is expected to improve, led by housing, finance, health and government. Other industries are forecast to lag
  
  
• Interest rates will remain very low for an extended period, leading to a further fall in required returns
  
  

Macro thematics for property markets

After an uncertain year for office markets, an improvement in many of the key leading indicators signals a period of strengthening demand ahead:

• Business confidence is positive and business conditions are reported to be the strongest since 2018

• Professional job advertisements, an indicator of corporate hiring intentions, were up 31% on six months ago

• Employment in white collar industries has grown by 2.5% over the past 12 months
  
  

• Occupier markets will strengthen but remain patchy, particularly for retail and office with some vacancy risk from business insolvencies
  
  
• Capital flows into property are likely to remain strong through 2021 given the low interest rate thematic. The wide yield spread in favour of property is expected to support investment demand for real assets in the foreseeable future

• Investors are anticipated to shift from defensive to growth sectors as their risk appetite increases. Sentiment will be mixed accordingly to asset class with strengthening demand for healthcare and alternative sectors
  

Sector outlook 

After an uncertain year for office markets, an improvement in many of the key indicators signals a period of strengthening demand ahead:

• Business confidence is positive and business conditions are reported to be the strongest since 2018
  
  
• Professional job advertisements, an indicator of corporate hiring intentions, were up 31% on six months ago

• Employment in white collar industries has grown by 2.5% over the past 12 months

• The industrial sector has been very resilient, outperforming other asset classes. Viewed as a relatively safe haven, this is forecast to continue supported by strong underlying ecommerce fundamentals 
  
  
• Retail has been hardest hit but several categories have performed well with non-discretionary remaining strong and discretionary retail turnover starting to recover. The outlook remains mixed with a subdued leasing environment expected 
  
  
• As highlighted in our last quarterly report, healthcare has been the fastest growing sector over the past two decades. This looks set to continue, underpinned by an ageing population and long-term population growth.
  
  To read the full report click here.