Investors need to keep sharp eye on commercial property opportunities

From

Per Amundsen

The Sydney and Melbourne office and industrial property sectors still offer solid investment opportunities for investors, says Per Amundsen, Head of Research for the specialist commercial property lender Thinktank.

“Industrial property ratings in both cities were upgraded to ‘strong and improving’ last month by Thinktank, matching the Office sector ratings there, making these four market sectors the investment standouts.

“By contrast, Perth still has four out of five property sectors – Residential Housing and Units, Office and Industrial – rated as ‘weak’, while for Adelaide Retail and Industrial are rated ‘weak’. However, Adelaide’s Office and Residential markets are ‘improving’. Brisbane’s markets are all rated ‘fair’ with Office and Industrial offering some upside with an ‘improving’ tag.

Amundsen says investors need to tread warily with the MSCI All Property Index for the year to 30 June 2019 down to 8.3% compared with 11.6% last year and 10.3% six months ago – the lowest level since September 2010.

“But for investors, and especially SMSF trustees wanting income, the outlook is more optimistic. Although income returns hit 5.4% at 30 June 2019, they have traded in a fairly narrow band since peaking at 7.5% in June 2010.

“Capital returns have been far more volatile over this period, peaking at 6.8% in March 2016 and then falling gradually to 3.4% in June 2019.” [This excludes the negative returns of June 2009 to June 2010.]

He says the Retail sector was proving a real drag on the property market, with total returns falling to 3.7% from 8.4% a year ago as Retail capital growth went into negative territory.

“With the Australian Bureau of Statistics showing a July retail sales slump of 0.1%, as well as plans by major retailers such as David Jones to substantially cut back on the number of stores they operate and the space they rent, is clearly having an impact on investor sentiment.

“But the Office and Industrial sectors continue to bubble along, especially in Sydney and Melbourne, with the latter showing a 13% return and the former an 11.6% return in the year to June 2019.

“Although Sydney and Melbourne are the strongest markets for both these sectors, it’s worth noting all capitals show a fairly even and steady income return.”

You must be logged in to post or view comments.