Pace of Growth in Australian Property Returns Dipped

Australian commercial real estate returns recorded a slowdown in the pace of growth in the second quarter. The Property Council of Australia/MSCI Australia Annual Property Index posted a total return for the 12 months ending June 30 of 10.5%, dipping from 11.4% in March and marking the first quarter-on-quarter decline since December 2020. Despite this moderation, the total return was still above the 10-year average of 9.5%.

Retail was the only core sector to log an improvement in performance compared to the previous quarter, as total return on standing investments came to 7.7%, up from 7.0%. Retail’s return was driven by an increase in capital return to 2.7%, the strongest performance since 2018. All retail subtypes posted improved capital return, but the super and major regional class saw the strongest growth at 1.6% annually.

Industrial-sector momentum eased from highs

The industrial sector continued to be the outstanding performer, recording a 12-month total return of 22.6%, primarily driven by capital growth which registered 17.6%. While these results indicate a slowdown in the pace of growth for industrial, they are still well above the 10-year average for total return. Looking at transaction activity for industrial properties, investment levels in the second quarter of 2022 retreated from the historically-high levels seen a year prior.

The office sector, which makes up 46.1% of the total value of the index, recorded a total return of 8.5% for the 12 months to June, a slight decrease compared to the 9.2% recorded in March. This slowdown was due to a sharp change in fortunes for secondary offices. After registering a total return of 9.1% in the first quarter, this figure fell to 5.4% in the second – exactly half the 10-year average.