Commercial property passing the peak

Commercial property passing the peakThe commercial property investment market appears to have passed its cycle peak and a slight softening is on the horizon, finds the latest Property Council / IPD Australia All Property Index.The Index, which records direct investment in property, tracks more than 1400 commercial assets valued at $165 billion representing approximately 60 per cent of the institutional investment market. Annual returns on commercial property stood at 13.3 per cent to the year ending June 2016, with income and capital returns at 6.5 per cent and 6.3 per cent respectively.Anthony De Francesco, executive director of MSCI, which manages the Index, says this return represents a slight softening from its peak of 13.7 per cent in December 2015.He says the property market is likely to experience a “slight softening in its return profile throughout the year” as space market conditions ease.Australian commercial property continues to compete favourably against global property markets, with total returns outperforming key markets such as the United Kingdom and United States. In contrast, New Zealand’s market is surging ahead of Australia’s, with annual total returns of 15.1 per cent.Across the various property sectors, De Francesco calls healthcare the “clear outperformer” with an annualised return of just under 23 per cent. This is followed by the hotel sector, at 18.4 per cent. The office sector remains static at 14.6 per cent.”The office sector is expected to be the best performing core sector for the remainder of this year despite its return profile moderating over the year with a softening in white-collar employment growth,” De Francesco explains.Unsurprisingly, Sydney performed best with an annualised return of 18.8 per cent, while Perth remains in the doldrums with an annualised return of minus 0.5 per cent.The retail sector is also moderating as retail sales growth slows. However, De Francesco predicts this is likely to rebound, albeit mildly, with any future cuts to interest rates. Click here for more information on the Property Council/IPD Australia All Property Index.