How economic trends could impact your portfolio in the mid-term
In this episode of The Smart Property Investment Show, IPA’s general manager of technical policy, Tony Greco, gives hi...
A mixture of lower interest rates, loosening of banks’ lending requirements and continued foreign buyer interest will play a big part in how the property industry will transpire in the year 2020, according to an expert in the space.
According to Paul Craig, CEO of Savills Australia and New Zealand, the year 2019 presented an interesting one for the Australian property sector.
“The property market in 2019 has fundamentally stood tall and demonstrated its resilience. This low for longer interest rate environment means real assets, and in particular real estate, will continue to be well sought after as investors chase yield,” Mr Craig said.
“In particular, Australia will continue to attract foreign capital supported by a cheap AUD, positive yield spreads to debt enabling positive funding from leverage and the lag effect of cap rate compression due to some skepticism of further runs in yield as we hit all-time yield lows/highs in valuation.
“2020 will see the commercial office sector continue to compress, supported by limited supply and developer discipline as CBD tenants begin to push their boundaries of space capacity. A lot of our clients will continue to favour the Sydney and Melbourne CBD, North Sydney, Parramatta and, interestingly, are beginning to think has reverted too far and may provide risk opportunities. As with Perth, Brisbane could also provide risk opportunities as vacancies contract and new development remains scarce.”
Furthermore, the industrial sector will continue to attract capital in 2020, Mr Craig said.
“We are concerned about the low growth in rents; however, the inbuilt rent bumps of 2-3 per cent will support overall,” he said.
“Retail is the interesting asset class and, perhaps with tough retail sales turnover, a forgotten asset class with opportunities. With centres such as Marion in SA and Booragoon WA recently trading relatively easily for their financial size and demand for non-discretionary retail still sought after (especially by private investors and syndicates), there remain no forced sellers in response to financiers requirements, although there have been funds withdrawal demands that may have prompted transactions.
“Retail is worth looking at, especially supported by population densification and rising or changing socio-economic conditions of the surrounding demographic.”