Property performing well. What next?
The Australian Real Estate Quarterly Review Q2 2016 reports on the outlook for Australian office, industrial and retail sectors.
The focus this quarter is how property markets are performing and the drivers of return going forward.
While the economic outlook is somewhat mixed, the capital and occupier markets continue to support commercial real estate values as we move towards FY17. Investment demand remains strong with transaction volumes at high levels supported by broad range of buyers.
A-REITs and unlisted property delivered above average total returns over the past year of 11.3% and 13.9%, respectively. Unlisted property returns have benefited from strong capital gain in the past 12 months.
The rate of capital growth is expected to ease in FY17 and FY18 as yield tightening tapers, although the prospect of increasing rents could provide support in the east coast markets.
In the east-coast office markets, a supply lull over the next couple of years, combined with positive leasing demand should allow incentives to ease and effective rents to firm.