OUTLOOK
Outlook
FUNDS HAVE RETURNED TO
AUSTRALIAN REITS AS DEMAND
RISES FOR CITY OFFICES AND
INDUSTRIAL SPACE
REITs’ performance decoupled with the underlying property sector
in the fourth quarter of 2018, but have since bounced back.
The Australian office sector is a
tale of two halves with Sydney
and Melbourne seeing strong
growth while in Perth, the
vacancy rate recently peaked
at 25%. Meanwhile, the retail
and residential sectors have
remained in the doldrums with
industrial properties showing
robust performance as rent
climbed above historic highs.
Sydney (Photo by Belle Co from Pexels)
According to real estate
Pete Morrissey,
investment fund manager APN
CEO, Real Estate Securities
Property Group, rental growth
of APN Property Group
in the major office markets of
Sydney and Melbourne has
eased to single-digit from double-digits, but demand has remained
strong. “This growth has been underpinned by limited supply
with the central business districts of Sydney and Melbourne
being built up and having limited scope for expansion,” according
to APN’s Assistant Fund Manager Mark Mazzarella.
recovering commodity firms. “The rental growth over the past
years has been in a low economic and wage growth environment,
so APN sees the office outlook as remaining bright,” he says.
R E S I D E N T I A L M AY S TA B I L I S E I N 2 0 2 0
In the residential sector, demand continues to be weak, notably in
Melbourne and Sydney. APN expects this weakness to continue
through 2019 with the current tight lending standards a key
contributor. “The likelihood of interest rate cuts by the Reserve
Bank of Australia (RBA) and improved post-election residential
market sentiment may assist the market in stabilising but this will
take time,” says CEO Pete Morrissey.
This contrast with market fundamentals in Brisbane and Perth,
“Vacancy peaked at 25% in Perth, though there has recently been
net absorption which has brought vacancy down to 20%,” says
Mazzarella. “There is no rental growth in these markets, though
rents have stabilised along with very high incentives (up to 50%
of the lease value),” he says. These incentives could include rent-
free periods, rent reduction or fit-out contribution.
Across Asia, the retail sector is lagging the office and industrial
sectors. The same is true in Australia, where the divergence in
performance is just as wide.
However, Mazzarella is positive about the market outlook with
demand coming from expanding industries like technology and
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According to Morrissey, part of the reason is benign wage growth
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