While the markets continue to soften, returns remain resilient and some assets report capital growth, according to the latest Property Council/MSCI Australia Annual Property Index.
Three key takeaways:
- Australian commercial property reported an annual 0.9% total return for the year to September 2020, down from 7.9% a year earlier
- Investment performance for the Australian commercial real estate market has softened, falling 709 basis points on the previous year
- The index reports a 4.7% income return and -3.7% capital growth.
“While markets continue to soften, led by retail, returns remain resilient as office, industrial and healthcare sectors continue to report capital growth,” says MSCI’s executive director Mitchell McCallum.
The third quarter of 2020 posted the lowest annual growth rate since the first quarter of 2010, when asset values were just beginning to trend upwards following the global financial crisis.
The annual income return of 4.7 per cent represents the lowest figure since the Index’s inception 25 years ago. McCallum attributes this to “difficulties in rent collection rather than income compression”.
“Income has continued to soften to unprecedented levels, which may see capital values impacted more severely in the future,” McCallum adds.
Retail total returns fell again during the quarter, hitting double digits of -10 per cent for the year to September 2020. “This is the worst performance on both an income and capital basis since the Index started recording returns 25 years ago.”
However, there may be light at the end of the tunnel. “Interest around retail is on the rise with client inbound enquiries at MSCI suggesting the price is getting to a point that a counter cycle play could be ahead,” he explains.
Healthcare assets performed against trend with total returns increasing for the quarter and the year. McCallum says the data reflects “strong interest around the sector”.
Office annual total returns continued to slow to 6.8 per cents, down from 11.4 per cent 12 months early. “While the slowdown has been significant, asset owners have retained positive capital growth as quality stock is still well regarded in portfolios,” McCallum adds.
Industrial assets continue to outperform in the uncertain economic climate, posting an annual total return to Q3 2020 of 11.2 per cent, compared to 12.9 per cent just 12 months earlier.
Across the major cities, Sydney fared the best with an annual total return of 3.3 per cent, followed by Melbourne (-0.3%), Brisbane (-0.3%), Canberra (-0.75%), Adelaide (-1.4%) and Perth (-1.9%).
