THE property industry is optimistic of the year ahead, however, gearing ratios are expected to fall further as a result of the uncertainty in the European debt and world economic issues, according to the Australian Property Institute’s Property Directions Survey.
The survey uses property clocks to gauge the industry’s views of the property cycle in Sydney, Melbourne and Brisbane.
API NSW president Robert Dupont said compared to the April 2011 survey, commercial and industrial property in Sydney, Melbourne and Brisbane are seen as having moved slightly ahead in the cycle, whereas retail and residential property are seen as having moved backwards.
“Commercial and industrial property in the three cities are seen to move slowly further along the upswing over the next two years. Residential is seen as having moved substantially backwards with only moderate recovery seen as occurring over the next two years.
“Currently, commercial property in Sydney, Melbourne and Brisbane is seen as having commenced the upswing with Melbourne the most advance along the upswing. Industrial property in all three cities is seen on the upswing of the cycle whereas retail property is seen as being at the bottom of the cycle in Melbourne and Sydney yet to reach the bottom of the cycle in Brisbane,” he added.
Dupont said residential property is currently seen in Melbourne, Sydney and Brisbane as being on the downswing of the cycle with Melbourne having further to drop to reach the bottom of the cycle.
Survey respondents predict advancement along the upswing for commercial and industrial property in one year’s time.
Retail is seen as remaining at the bottom of the cycle in Sydney and Melbourne with Brisbane reaching the bottom of the cycle in a year’s time. Residential is seen as commencing the upswing in Sydney and Brisbane whilst Melbourne is seen to be at the bottom of the cycle a year from now.
In two year’s time, respondents see all property classes in the three cities on the upswing however Melbourne commercial and industrial property and Brisbane residential are not seen as advancing from a year earlier.
“Sydney and Melbourne commercial property is predicted to be the most advanced on the upswing in two year’s time however overall progress on the upswing of the cycle is expected to be slow,” Dupont said.
However the survey found 50% of respondents see a continuing of the lowering of gearing ratios as a result of European debt and world economic issues which is causing them to re-assess the risks in relation to property and property financing.
Respondents remain less certain of the impact of risk in relation to financing costs with results more evenly split from lower to higher financing costs.
API Victorian President Steve Simpson said since April, sentiment has declined for industrial and retail property in Sydney, Melbourne and Brisbane and for commercial property in Melbourne and the Sydney suburban CBDs.
“Respondents only see improvements in market values and rents above CPI for the next 12 months for the Brisbane CBD and an improvement in rents for the Sydney CBD.
“Sentiment for the Brisbane CBD commercial property has witnessed a significant positive increase with predicted growth projection above CPI for market value up to 1.7% from 1% in April and with predicted market rental at 1.3%, up from 0.4% in April,” he added.
Simpsons said all respondents see leasing incentives as a feature of all Australian capital city markets. Estimates were made as an annual percentage over a five year lease term.
“Since the April survey there is a trend for lease incentives to have decreased across CBDs in capital cities. While a majority of respondents still see incentives for commercial property in the Sydney CBD and suburban CBDs as being in the 20-29% range, it is a smaller majority than in April due to movements to the lower range of 10-19%.
“The Melbourne CBD and suburban CBDs lease incentives are seen more in the 10-19% range. Similarly to April, overall Melbourne CBD commercial property is seen as having lower incentive levels than commercial property in the Sydney and Brisbane CBDs. The majority of respondents see Brisbane incentives in the 20-29% range with a trend to declines in incentive levels,” Simpson said.
Most respondents see lease incentives for Perth commercial property decreasing to the 0-9% and 10-19% ranges. Adelaide, Canberra and Hobart lease incentives for commercial property are seen to be generally in the 10-19% and 20-29% range, however it appears that respondents overall are less certain in their views with responses more evenly split across the full range of incentives.
The survey found 71% and 62% of respondents, a smaller majority than in April, see effective rents as increasing in the next six months for Sydney and Melbourne, respectively. A slight majority of 52% see effective rents as stable in Brisbane over the next 6 months.
In the three cities, a larger majority of respondents see effective rents increasing over the next 12 months with stronger sentiment in Sydney and Melbourne than in Brisbane.
The survey also found sentiment has improved from April this year, with more respondents predicting that the non-residential property sector is likely to outperform the equity markets in the next 12 months.
Respondents are less certain whether non-residential property will outperform equity markets over the three to five year periods.
Meanwhile Dupont said currently, foreign investment is viewed as supporting a number of Australian property markets including commercial, residential, mining and farming markets in relation to price maintenance.
“The introduction of overseas developers in Australia is seen as contributing to the supply of residential property in the longer term. A possible downside of foreign investment, with long term holding horizons and low required yields, is that some commercial holdings may not be available to domestic funds in both the short and long term,” he added.
Most survey respondents forecast at least a moderate investment growth for both Australian listed and unlisted property trusts and syndicates over the next 12 months, however this sentiment is down slightly from the April survey.
The survey found 59% of respondents see at least a moderate growth in listed domestic trusts and 69% of respondents see at least a moderate growth in unlisted domestic trusts and syndicates over the same period.
As with the April survey, respondents remain less certain in relation to international listed and unlisted trusts and syndicates with most respondents predicting moderate investment decline up to moderate investment growth for the next 12 months.
The trend is towards a slight decline for invested capital for international listed and unlisted trusts / syndicates compared to the April forecast.
Australian Property Journal
