Investors increasingly cautious as headwinds swirl
August 6th 2019 | , Urban Property Australia
Melbourne, Australia – August 6, 2019
After 27 years of uninterrupted annual domestic economic growth, a sense of caution is emerging as investors and occupiers monitor economic headwinds and consumer concerns. With yields of most sectors below previous benchmark lows, Urban Property Australia has recorded a substantial slowing of transactional activity across the office, retail and industrial property sectors.
Urban Property Australia Founder and Managing Director, Sam Tamblyn said that despite an initial confidence bounce provided by the re-election of the Morrison government, the volume of Australian commercial property is shaping up to be the lowest since 2012 with investors increasingly cautious.
Mr Tamblyn added, “the Australian economy has slowed to the weakest annual expansion since 2009 with consumers concerned by modest income growth and a decreased wealth effect from falling home prices, albeit with emerging signs that prices have stabilised.”
Looking ahead, growth momentum is unlikely to accelerate significantly through the rest of this year with the Australian economy is forecast to grow by 1.7% this year. In a bid to support economic growth, the RBA cut official interest rates in July 2019 to a new record low of 1.00% with further cuts are anticipated in 2019.
Australia’s economy has also been buffeted by global economic challenges that have included the intensified US-China trade war and the prolonged uncertainty on the Brexit decision. In the US, the Federal Reserve cut the US interest rates for the first time in 11 years while China’s GDP grew at its slowest rate since 2008.
Mr Tamblyn said, “despite the slowdown in the housing market and weak consumption growth, the labour market remains healthy which has been reflected by Australian office vacancies continuing to decrease over the first half of 2019.”
Australia’s total office vacancy rate has fallen to 8.3% as at July 2019, its lowest level since July 2012 with falls recorded in the majority of CBD office markets. Melbourne and Sydney remain Australia’s strongest and best performing CBD markets with total vacancy rates of 3.3% and 3.7% respectively.
Boosted by strong tenant demand and continued rental growth, the Australian office sector is the only commercial property sector on track to record annual sales volumes above average. Over 2019 to date Urban Property Australia has recorded more than $8 billion of office properties transacted boosted by a number of major sales.
Mr Tamblyn said, “the retail sector continues to face the greatest challenges with changing consumer preferences and technological changes impacting sales activity, values and rents. Australian retail trade has trended down over the past five years which has led to retailers adopting a cautious approach to expansion.”
Retail rental levels continue to be under downward pressure as many retailers prefer consolidation rather than expansion strategies. These soft occupier and consumer sentiment conditions have also hindered investment activity with transactional activity to date indicating that the 2019 annual volume will be the lowest Australian annual total since 2011.
Reflecting the easing investor demand for retail assets, Urban Property Australia estimate that yields have expanded for all Australian retail property types over the year to July 2019 with the exception of Regional shopping centres.
In contrast, the Australian industrial property market continues to gather momentum with strong appetite from occupiers, developers and investors alike.
Mr Tamblyn added, “Australia’s significant infrastructure pipeline continues to create new opportunities, boosting tenant demand as occupiers increasingly invest to improve supply chain efficiencies as e-commerce continues to mature.”
With vacancies falling across all markets, industrial rents have increased at 10-year high rates, land values growing by more than 20% in most established markets and prime yields declining to record lows.
Although industrial sales activity in 2019 to date has slowed in comparison to 2018, the lower sale volume more reflects a lack of investment opportunities rather than diminishing investor appetite.
Urban Property Australia (UPA) is an independent property valuation, transaction management and advisory company based in Melbourne. UPA’s experienced team draws on a combination of comprehensive data and industry insights to offer a fully integrated suite of services. Since its foundation in 2009 UPA has provided strategic advice and analysis on more than $35 billion in property transactions for clients including many of Australia’s and South East Asia’s leading corporates, financial institutions and investors. For more information see upaustralia.com.au
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