Robust demand from investors has served to propel returns on commercial property in Australia to their highest levels in well over two years.
The Property Council/IPD Australia All Property Index has posted its highest total return in well over two years, sustaining the momentum of the robust growth witnessed over the past several quarters.
The index results for Q3 2013 indicated a total return of 9.9 per cent for the year ending September 2014, comprised of a 7.1 per cent income return and 2.6 per cent capital return.
This total return is the highest logged by the index since June 2012, and marks an increase of 60 basis points compared to the same period a year previously, as well as an increase of 20 basis points compared to the preceding quarter.
The Property Council/IPD Australia All Property Index is comprised of 1354 assets with a combined value of approximately AUD$140 billion. The index serves as a broad measure of the returns on investment for commercial property in the Australian market.
According to IPD robust demand from investors has served as a key driver behind the strong returns logged by Australian commercial property.
“The improvement in overall property sector performance is underpinned by increased capital growth due to broad-based firming in capitalisation rates across the commercial property market, reflecting strong investor demand,” said IPD.
Broken down by core property sectors the returns for retail, office and industrial were 10.0 per cent, 9.3 per cent and 11.4 per cent respectively.
The industrial sector has been the stand out performer for the past 12 months overall, logging the highest returns out of all the core sectors. Total returns for the industrial sector have achieved a year-on-year increase of 100 basis points.
The third quarter results for industrial have nonetheless fallen compared to the immediately preceding quarter, declining 50 basis points compared the results for June.
The demise of the investment and development phase of the mining boom took its toll on the office sectors of Perth and Brisbane, both of which saw significant declines.
Returns for the office sectors of Australia’s two most populous cities of Sydney and Melbourne nonetheless posted gains compared to the corresponding period a year previously.
The retail sector saw an increase in returns on the back of the robust performance of smaller shopping centres servicing regional areas and neighbourhoods. The strongest overall performance was seen in more populous centres of Australia’s eastern seaboard.