The Australian commercial real estate market recorded substantial adjustments in value in 2023, with no sector going unscathed. The Property Council of Australia/MSCI Australia Annual Property Index posted a total return for 2023 of -2.5%, well down from 6.7% recorded in 2022. The office sector was the only core sector to record a negative annual total return, as it posted -6.2% for the year, driven by a -10.5% capital decline.
The industrial sector has of course been the star performer of the last several years, however after recording an annual total return of just 1.1% compared to 11.7% 12 months prior, it too is now feeling the pressure. The sector saw 2.8% wiped off its values in 2023, the first capital decline recorded since September 2010. Given the stellar performance of the industrial sector in recent years, its of little surprise that a slowdown was coming. However, given the strong rental growth seen in most markets, and the limited supply coming online, its possible this was a one-time correction for the markets star performer and will be interesting to see how this develops over the coming quarters.
The retail sector managed to avoid a negative annual total return for the year by posting 0.7%, but it couldn’t avoid further write-downs recording capital growth of -4.8%. After incurring substantial losses immediately following the onset of COVID-19, the retail sector failed to claw back much of those initial losses so further value decline shows investors remain wary of the sector. Yet, there were some bright spots in the numbers as all major retail categories showed a slowing pace of decline as Q4’23 capital growth losses were significantly less severe than Q2’23: could this mean retail is nearing the trough in the cycle?
One sector that appears a long was off the trough is the office sector. The office sector recorded quarterly capital growth of -3.2% in Q4, and whilst this is a slight improvement on Q2 figures, its not enough to suggest the trough is on the horizon. Furthermore, the disparity between prime and secondary assets is cause for concern as discussions on stranded assets gain momentum.
Secondary office assets recorded capital losses of 14.2% in 2023, compared to prime offices 10.4%. The best performing office market in the country was Perth, the only major market to avoid a negative annual return for the year by posting 0.3%. Granted, this is barely positive, but in a market beset by negative sentiment and performance, any signs of positivity are welcome.
Rolling Annual Returns
Capital Growth Changes
