Australian property returns were at a three year high in Q4 2021, driven by record industrial returns. The Property Council/MSCI Australia Annual Property Index achieved an annual return of 11.4%, after its best quarterly capital growth since 2007. Some of the key results to come out of the index release include:
- At the end of December 2021, the annual total return of the Property Council/ MSCI Australia Annual Property Index was 11.4% – the highest since the second quarter of 2018.
- The total return comprised an income return of 4.8% and a capital growth of 6.4%.
- On a quarterly basis, the index’s All Property total return was 3.6% for Q4 and the capital growth of 2.5% was the highest single quarter figure since Q3 2007.
- Industrial property was the top performing sector for the year to December 2021 with an annual return of 30.2%. The office (9.2%) and retail sectors lagged significantly. The tailwinds boosting the industrial property sector benefitted all sub-types as distribution assets, warehouses and industrial estates delivered returns more than 29% for the year.
- The net operating income (NOI) yield of industrial property continued to strengthen and ended the quarter at an all-time low of 4.1%. Industrial yields moved below that of office for the first time in the index’s 36-year history in the second quarter of 2021 and has remained lower since.
- Office’s NOI yield strengthened through 2020 and 2021. This was despite questions over the sector’s future demand and risks to cashflow in the context of increased work-from-home.
- There was some divergence within the sector though as non-CBD offices outperformed CBD assets since the start of the pandemic. In 2020, non-CBD offices outperformed inner city assets by 360bps and in 2021 this spread widened to 520bps.
- Retail property’s relative underperformance continued. Notwithstanding a consecutive quarter of positive capital growth, asset values in the retail sector remained 13% below December 2019. Neighbourhood shopping centres was the best performing retail segment with an annual return of 13.7% while Super and Major Regional Malls lagged at 4.7% p.a.
- Among the city markets, Adelaide delivered the best returns for the year to December 2021 at 18.2%, followed by Sydney at 12.7% and Canberra at 12.0%. Brisbane and Melbourne recorded annual total returns of 11.1% and 10.7% respectively while Perth trailed at 7.5%.
- The strength of the industrial sector wasn’t geographically limited as all the major cities delivered a sector total return above 20%. On a city level Perth delivered the lowest industrial return of 22.0% which was still the highest since March 2008.
For more information on the Q4 2021 results, click here.
Written by – Mitchell McCallum, MSCI