AREITs and unlisted property offer solid returns

AREITs and unlisted property offer solid returnsAccording to the Australian Real Estate Quarterly Review Q3 2014 released by DEXUS Research, AREITs and unlisted property both delivered solid returns over the year, with the sector reporting rising asset values.The report, which looks at the current state of Australia’s office, industrial and retail sectors, says that markets are still favouring growth assets despite mixed economic news globally.Unlisted property delivered an annual return of 9.4 per cent for the year, while AREITs delivered an annual return of 11.1 per cent.A recent tightening of bond yields has helped the strong performance of the AREIT sector, which has also reported rising asset values due to market cap rate compression and a recovery in the residential sector. This is despite the fact that earnings growth remains clouded by soft tenant demand and occupancy risk.As a whole, the equity market has outperformed the more defensive asset classes, delivering a 17.4 per cent return for the year. The report suggests that high levels of liquidity globally have benefited equity pricing.DEXUS Research says investment demand experienced the strongest quarter on record, with investors continuing to seek the secure incomes offered by Australian real estate.The industrial sector remained the best performer for the year, with returns of 11.3 per cent, followed by office and retail, both at 9.1 per cent.AREITs and major institutional property companies were active in the industrial sector, competing for limited prime stock in conveniently located industrial precincts. The report noted a surge in tenancy demands across the major industrial markets as the economy responds to low interest rates and logistics firms and retailers seek efficiencies.Industrial property returns are expected to remain solid in 2014 as a result of their high-income yield and strong investment demand supports values.Like unlisted property, direct property has also been a consistent performer, returning 9.3 per cent in the year to March 2014, and it looks set to benefit from further capital growth in the short term.Indicators are also pointing to an improvement in office demand in the year ahead, with employment turning the corner in Melbourne and Sydney CBD and business confidence remaining steady.Find the full report from DEXUS here