Investor Sentiment

As part of the third quarter 2017 Situs RERC/UPA Australian Market Expectations Survey, respondents were asked to provide insight for commercial real estate across five of the capital Australian cities (Adelaide, Brisbane, Melbourne, Perth and Sydney) during 2017 and beyond.

Respondents who contributed to the third quarter 2017 Situs RERC/UPA Australian Market Expectations Survey included landlords, fund managers, investment bankers, REIT analysts, superannuation fund managers, valuers/appraisers, financiers, private investors and real estate agents.

The variety of respondents ensured that the analysis of the survey offers insight into investor sentiment and provides a useful tool to evaluate investment trends for the commercial real estate market.

Buy-Sell-Hold Recommendations

Overall, the third quarter 2017 survey results revealed that 45 percent of respondents indicated that it was a good time to hold Australian commercial real estate, followed by 36 percent  who believed it was the best time to sell Australian commercial real estate (see Exhibit 25). Despite Australia’s strong property performance in comparison to other regions in recent years, buying commercial real estate was the least appealing investment option to respondents. It accounted for 19 percent of all responses, up from 16 percent in the first quarter of 2017.

Exhibit 25

Investment Conditions

For Australia overall, investment conditions for each CBD office, suburban office and industrial were considered slightly above average in the third quarter of 2017. For the CBD office sector, 46 percent of respondents said that investment conditions were above average or excellent, as shown in Exhibit 26.

The most prevalent response for the suburban office market was that investment conditions were above average or excellent (39 percent), down from the 57 percent recorded as at the first quarter of 2017. Possibly alarmed by the structured changes, survey respondents regarded investment conditions for the retail shopping centres and retail big box/bulky goods/large format sectors slightly below average overall.

Exhibit 26

Investment Opportunities

While the CBD office sector was the preferred asset class for investment over other property sectors in the next 12 months, industrial and suburban office properties increased in investor focus (see Exhibit 27). For Australia overall, 32 percent of respondents said the CBD office sector was the best investment opportunity for commercial real estate.

The proportion of industrial property as the best investment opportunity increased to 25 percent in the third quarter of 2017, up from 16 percent in the first quarter of 2017. Some 23 percent of respondents said that the suburban office sector was the best investment opportunity, up from 14 percent as at the first quarter of 2017. The retail big box/bulky goods/large format sector was considered the best investment opportunity by only 4 percent of respondents.

Exhibit 27

Australian Economy and Interest Rate Outlook

In terms of the performance of the Australian economy during the next 12 months, the majority of survey respondents (63 percent) indicated that the Australian economy will remain stable, while 16 percent of respondents predicted that the Australian economy will rise (see Exhibit 28). In contrast, 19 percent of survey respondents indicated the Australian economy will decline in the 12 months to July 2018, more pessimistic than the 9 percent recorded as at the first quarter of 2017.

Exhibit 28

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