Property Australia

Australian property returns rebound

Karen Jamal Karen Jamal August 17, 2021

The latest Property Council/MSCI Australia Annual Property Index posted an annual return of 7.8 per cent, driven by the industrial sector’s strong performance.

Three key takeaways

  • The 7.8% total return was the highest since the third quarter of 2019, underpinned by an income return of 5.0%
  • Capital growth, at 2.7% per annum, returned to positive territory for the first time since the first quarter of 2020
  • On a quarterly basis, the index’s All Property total return was 3.0% for the second quarter of 2021 – the fourth consecutive quarter of positive return and the best quarter since the final quarter of 2017.

MSCI executive director Mitchell McCallum says returns have been steadily improving on a quarterly basis since June 2020, when total returns dropped to their lowest levels since the second quarter of 2009.

 

Graph 1: Total returns for all property, Australia

 GRAPH 1 TOTAL RETURNS FOR ALL PROPERTY

Unsurprisingly, industrial was the top performing sector with an annual return of 23.2 per cent. “All the industrial property segments recorded total returns in excess of 20 per cent for the year as yields compressed across the board,” McCallum notes.

 

Graph 2: Returns by sector, June 2021

GRAPH 2 RETURNS BY SECTOR JUNE 2021

“This was the first quarter in the Index’s 36-year history that the net operating income yield of industrial property was below that of retail and office.”

Net operating income, or NOI, equals all property revenue, minus all reasonably necessary operating expenses. The office sector’s NOI yield has held firm over the course of the last four quarters, with capital growth remaining in positive territory. McCallum does note, however, “some divergence” within the sector as non-CBD offices outperformed CBD assets.

Retail property’s relative underperformance continued with its eleventh consecutive quarter of negative capital growth. “However, the sector’s annual total return did return to positive territory as both income return and capital growth bounced off their 2020 lows,” McCallum adds.

Neighbourhood shopping centres were the best performing retail segment with an annual return of 7.6 per cent, while super and major regional malls lagged at 2.3 per cent.

Among the city markets, Canberra and Adelaide delivered the best returns for the year to June at 9.6 per cent, followed by Sydney at 8.9 per cent. Brisbane (7.8%) and Melbourne (6.4%) were ahead of Perth (5.3%).

“With the exception of Perth, all the capital cities’ industrial property sectors delivered a total return above 20 per cent,” McCallum says.

“Perth’s industrial property performance, while lower at 14.2 per cent, still amounted to an eight-year high as the sector benefits from heightened demand for warehousing and distribution related assets.”

 

Graph 3: Annual total return by segment, Q2 2021 v Q2 2020

GRAPH 3 ANNUAL RETURN BY SEGMENT Q2 V Q2

For more Property Council research, head over to the Data Room.

Tags: RESEARCH