Australian property performance continues to soften, with total returns of 1.4% for the year to June 2020, according to the latest Property Council/MSCI Australia Annual Property Index.
Three key takeaways:
MSCI’s executive director Mitchell McCallum says returns on Australian commercial real estate fell “to a level not seen in over a decade as the COVID-19 pandemic starts to take its toll”.
The results from the latest Property Council/MSCI Australia Annual Property Index, which covers the year to June 2020, reveal the lowest annual growth rate since the global financial crisis.
Retail total returns fell sharply during the quarter, declining -7.3%, down -9.4% overall for the year to June 2020.
Retail returns were impacted at both the valuation and income levels, with negative capital growth (-7.8%) and a soft income return (0.4%) for the three months to June 2020.
McCallum says the “huge drop-offs” in returns over the last quarter underscore the significant impact of rent deferrals, abatements and holidays.
The office sector posted its first quarter of negative growth in more than a decade. Over the year to Q2 2020, office total returns slowed to 8.0% from 11.7% over the year to Q2 2020.
The future of office investments remains the hardest to pick, McCallum says, as tenants rebalance space requirements to meet both remote working and physical distancing.
“The full effect of the pandemic is far from over and we expect to see the trends play out for some time.”
Industrial continues to outperform the market, posting an annual total return to Q2 2020 of 11.6%, compared to 13.0% 12 months earlier.
The result reflects the “strong value proposition” of the industrial sector, but McCallum notes that the move to e-commerce was “an acceleration of an existing trend”.
Across the major cities, Sydney fared the best, posting an annual total return of 4.0% followed by Melbourne with 1.0%. Brisbane (-0.2%), Canberra (-0.3%), Perth (-1.9%) and Adelaide (-8.2%) all experienced negative total returns over the 12 months to June 2020.
“With the path to recovery still uncertain and Australia facing its first technical recession in almost 30 years, there are plenty of challenges on the horizon for the real estate industry,” McCallum concludes.