The latest data (June 2018) from the Australian MSCI/IPD index showed a moderating, yet still above-average performance for property. The all-property total return performance of 11.7% (unlevered, in local currency units) is equal to its 5-year LTA, and still well above its 10 and 15-year LTAs. While income returns have been fairly stable in the mid-5% to mid-7% range for all property in the past decade, capital returns have increased much more dramatically, thanks to ample local liquidity and heightened interest from offshore investors seeking good risk-adjusted returns. All major property types delivered robust, double digit total returns for the year to Q2 2018 with the notable exception of retail where returns decelerated to 8.4%. Leading the out-performance was the office sector, with a 14.7% total return.
Data points through end of September 2018. Change represents month-over-month change.
Since the end of 2016, Sydney’s prime industrial yields have been falling quite rapidly and leading national trends into record pricing territory. Due to its supply-constrained geography, coupled with strong recent rates of absorption and ongoing zoning changes in parts of the metro which aim to convert selected older, inner submarkets into higher and better uses, Sydney industrial markets have seen a surge of investor interest. In more recent quarters, Melbourne and then in turn, Brisbane, have also seen their industrial yields move lower. Improving fundamentals in those two metros have helped stoke this investor appetite as have some improvements to and announcements of, major new transportation infrastructure. Additionally, there is the structural investment theme of targeting the sector which appears to gain most from the rise of e-commerce.
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