Investors should keep an eye on commercial property

The office markets in Sydney and Melbourne and industrial property sectors still look attractive for investors, according to head of research, Per Amundsen, at the specialist commercial property lender Thinktank which has recently upgraded industrial property ratings to ‘strong and improving’ for both cities.

By contrast, Perth still had four out of five property sectors (residential housing, units, office and industrial) rated as weak while Adelaide saw only two, retail and industrial, rated as weak, and its office and residential markets were described as ‘improving’.

Following this, Brisbane’s markets were all rated ‘fair’ with office and industrial offering some upside with an ‘improving’ tag.

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“But for investors, and especially SMSF trustees wanting income, the outlook is more optimistic. Although income returns hit 5.4% at 30 June 2019, they have traded in a fairly narrow band since peaking at 7.5% in June 2010,” Amundsen said.

“Capital returns have been far more volatile over this period, peaking at 6.8% in March 2016 and then falling gradually to 3.4% in June 2019. This excludes the negative returns of June 2009 to June 2010.”

According to Thinktank it was still the retail sector that was proving a real drag on the property markets, with total returns falling to 3.7% from 8.4% a year ago as retail capital growth went into negative territory.

“With the Australian Bureau of Statistics showing a July retail sales slump of 0.1%, as well as plans by major retailers such as David Jones to substantially cut back on the number of stores they operate and the space they rent, is clearly having an impact on investor sentiment,” he said.

“But the office and industrial sectors continue to bubble along, especially in Sydney and Melbourne, with the latter showing a 13% return and the former an 11.6% return in the year to June 2019.

“Although Sydney and Melbourne are the strongest markets for both these sectors, it’s worth noting all capitals show a fairly even and steady income return.”

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