Now that children have returned to school, we are well and truly into 2019 for the commercial property industry. After widespread falls in global equity markets during December, coupled with falling house prices closer to home, many view the year ahead with more trepidation than they did 12 months ago.
Furthermore, after five consecutive years of double-digit returns, the market is now perceived to be distinctly “late cycle”.
However, the underlying drivers of growth remain largely in place and Australia retains its attraction as a global investment destination. While growth is expected to slow, we expect the economy to remain resilient and supportive of the property market, with sustained employment growth underpinning demand and absorption.
In 2019 there are five trends that will define the market.
- Slower capital growth, with rental growth key to prospects: After a strong and sustained run, the pace of capital growth is likely to slow in 2019 as broad-based yield compression wanes. Rental growth and asset-specific factors will increasingly need to drive performance as the market enters a new phase.
- Industrial portfolios at a premium: The weight of demand for investable industrial and logistics stock continues to outweigh supply, to the point where in 2019 we may see investors willing to pay a premium to access scale through portfolio acquisitions. This could spur the amalgamation and curation of balanced portfolios while investors explore a variety of creative approaches to access the market.
- Dollar depreciation to buoy high-end retail: Moderating retail spending and the ongoing impact of new technology will drive continued polarisation in the retail space. The shopping centres and retail spaces that offer a premium experience will continue to outperform; while the depreciation of the Australian dollar is clearly supporting tourist arrivals and will benefit retailers exposed to visitor spend.
- The growth of urban logistics: The nature of logistics demand is changing and urban logistics will experience significant growth throughout 2019 as e-retailers seek space in city fringe locations as a way to speed up delivery times and remain competitive. This will see demand shift inward, closer to the end user rather than outer city locations.
- Resilient demand, but tighter liquidity: Demand for property will not be adversely affected by slower global growth and rising allocations to real estate from global private equity and domestic super funds will ensure they maintain their appetite. However, lower capital growth may contribute to trade abating slightly resulting in lower investment volumes in 2019.