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SYDNEY: Returns on Australian properties are improving, with Sydney's prime retail rents the second highest in the world behind New York, but experts see rises moderating as investors turn cautious and on higher interest rates.
Total returns for all Australian property types, including income and capital, rose to 7.9% in the year to September, from 6% in the year to June, property research firm IPD said on Thursday, Nov 18.
In the office sector, total returns for the year to September improved to 7.7% from 5.2% in June while total returns for retail assets rose to 8.2% from 6.6%.
The Australian real estate market, which saw prices fall more than 20% during the global credit crisis, has rebounded quickly compared with other mature markets, although Anthony De Francesco, managing director for IPD Australia, said the recovery pace was slowing and caution remained.
"It's not a strong recovery," said Francesco. "Interest rates have risen and that will put pressure to hold cap rates (returns on investments) where they are rather than causing cap rates to firm," he added.
He noted that investors had become selective and secondary assets could remain under pressure, offsetting gains in quality assets.
In the retail sector, Sydney was the second most expensive market after New York, asking US$1,218 (RM3,812.34) per square foot per annum for the third quarter, according to CB Richard Ellis. But the company expects rents in prime retail markets to stabilise going forward.
"In the current environment of rising interest rates and flat retail sales, we expect rents will stabilise over the next 12 months to 18 months," Josh Loudoun, CBRE's regional director retail services, said in a note this week.
The latest data showed that Australian retail sales rose a modest 0.3% in September.
David Green-Morgan, head of Asia Pacific research for DTZ, said opportunities may be found in the industrial sector where prices remain attractive and rents could grow over the next five years associated with Australia's surging trade with China.
"We see pricing opportunities in industrial assets where returns will be driven more by capital gains," he said. — Reuters
Total returns for all Australian property types, including income and capital, rose to 7.9% in the year to September, from 6% in the year to June, property research firm IPD said on Thursday, Nov 18.
In the office sector, total returns for the year to September improved to 7.7% from 5.2% in June while total returns for retail assets rose to 8.2% from 6.6%.
The Australian real estate market, which saw prices fall more than 20% during the global credit crisis, has rebounded quickly compared with other mature markets, although Anthony De Francesco, managing director for IPD Australia, said the recovery pace was slowing and caution remained.
"It's not a strong recovery," said Francesco. "Interest rates have risen and that will put pressure to hold cap rates (returns on investments) where they are rather than causing cap rates to firm," he added.
He noted that investors had become selective and secondary assets could remain under pressure, offsetting gains in quality assets.
In the retail sector, Sydney was the second most expensive market after New York, asking US$1,218 (RM3,812.34) per square foot per annum for the third quarter, according to CB Richard Ellis. But the company expects rents in prime retail markets to stabilise going forward.
"In the current environment of rising interest rates and flat retail sales, we expect rents will stabilise over the next 12 months to 18 months," Josh Loudoun, CBRE's regional director retail services, said in a note this week.
The latest data showed that Australian retail sales rose a modest 0.3% in September.
David Green-Morgan, head of Asia Pacific research for DTZ, said opportunities may be found in the industrial sector where prices remain attractive and rents could grow over the next five years associated with Australia's surging trade with China.
"We see pricing opportunities in industrial assets where returns will be driven more by capital gains," he said. — Reuters
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