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. 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.
According to The Property Council/ MSCI Australia Annual Property Index Q2 2020 results reported an annual 1.4% total return for Australian commercial property for the year to June 2020. Q2 2020 represented the lowest annual growth rate since Q1 2010, when asset values were beginning to trend upwards post global financial crisis.
Key results from Q2 2020:
- Retail returns were impacted at both the valuation and income level, with negative capital growth (-7.8%) and a softer income return (0.4%) for the three months to June 2020. This compares to a quarterly income return of 1.2% in Q1 2020, highlighting the significant impact of rent deferrals, abatement and holidays.
- Over the year to Q2 2020, Office total returns slowed to 8.0% from 11.7%, experiencing its first quarter of negative capital growth in June 2020 (-1.0%) in over a decade.
- Industrial continues to outperform in the uncertain economic climate, posting an annual total return to Q2 2020 of 11.6%, compared to 13.0% 12 months earlier. This reflects Industrial's strong value proposition, as the move to e-commerce is accelerated by current market conditions.
- Across the major cities, Sydney fared the best in Q2 2020, 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.
- Slowing returns, with New Zealand (4.1%), the U.S. (2.7%), Canada, (1.3%) and the U.K. (-2.9%) all softening over the quarter and year to June 2020.
Written by Mitchell McCallum, Executive Director, MSCI