Australian commercial property returns continue growth trend

Australian commercial property returns continue growth trendThe latest Property Council/IPD Australia All Property Index results showed the highest total return recorded since June 2012, continuing a growth trend seen in recent quarters.The index for Q3 2014 showed a total return of 9.9 per cent for the year ending September 2014, a result that comprised a 7.1 per cent income return and 2.6 per cent capital return.According to IPD, the September 2014 total return is a 60 basis point increase from the same period a year ago and a 20 basis point increase on the previous quarter.Across the sectors, the index revealed core property sector returns for retail, office and industrial at 10.0 per cent, 9.3 per cent and 11.4 per cent, respectively.Over the past 12 months the industrial sector has once again recorded the highest returns among the core sectors and its total return is 100 basis points higher than at the same time last year.However, the September result for industrial was basis points down on the June result, which suggests the sector may have reached a turning point.Growth in retail returns was largely driven by smaller regional and neighbourhood shopping centres while assets in the eastern seaboard states outperformed those in other regions.In the office sector, returns in the Perth and Brisbane markets saw a marked decline as the slowdown in mining investment takes its toll, but returns in Sydney and Melbourne were up on the same period last year as some of the weakness in space markets, which has constrained their recent performance, appeared to ease.”The improvement in overall property sector performance is underpinned by increase capital growth due to broad-based firming in capitalisation rates across the commercial property market, reflecting strong investor demand,” IPD said.Compared with other asset classes, returns for Australian direct real estate over the year to September 2014, at 9.9 per cent, exceeded bond returns of 7.9 per cent (JP Morgan 7-10) and equities returns of 6.3 per cent (MSCI). However, direct real estate was outperformed by AREITs, which returned 14.3 per cent (MSCI) over the year to September 2014.The Property Council/IPD Australia All Property Index has a combined value of about AU$140 billion representing 1354 assets and provides a broad measure of returns for commercial property investment in Australia.