MSCI, a provider of indexes and analytics, has recorded an annual 10.3 per cent total return for Australian commercial property in 2018, which was down from 11.9 per cent in 2017, according to its Property Council/MSCI Annual Property Index Q4.
Further on that, Australia’s commercial real estate performance in 2018 was lower than those of the Netherlands where total return stood at 14.8 per cent but above Ireland, Canada, the US and the UK where returns were 9.1 per cent, 7.4 per cent and six per cent, respectively.
Australia saw its industrial assets as the strongest performing sector in the year to June which showed total returns of 14.8 per cent and this was the only sector which recorded a substantial increase in performance, the firm said.
Following this, the office sector went up marginally to 13.7 per cent from 13. 4 per cent a year before, mostly driven up by Sydney’s market (grade B, C and D) market.
At the same time, the retail sector experienced the worst performance in 2018 with total returns declining 400 basis points to six per cent while capital growth declined substantially.
Also, all the major centres across Australia, except Canberra, saw total returns fall but still in the high single digits or above, with Sydney and Melbourne leading other capital with double digit returns (13. 4 per cent and 10.5 per cent , respectively.
According to MSCI, concerns still remained, in particular for retail sector, due to changing consumer behaviours, low wage growth, mounting debt levels and falling house prices weighing on investors’ minds.
“While capital growth for all retail assets remains marginally positive, it has slipped into negative territory for regional, sub regional and neighbourhood assets,” the firm said in a press release.
What is more, declining net operating income growth and evidence of a widening performance gap between the best and worst performing assets would add to the uncertainty for the retail sector as Australia had a higher exposure to retail assets than many other markets with 42 per cent of the index weight by capital value invested in the sector.
