Australia's direct real estate market delivered a healthy 16.9% total return to 30 June 2007. This follows on the back of nine consecutive years of double digit growth.
Speaking at the Property Council/IPD Index Launch, IPD's Australian Director John Garimort commented that, "The continued strength of the direct market reinforces the importance that real estate plays in a balanced investment portfolio. With an annual return of almost 17%, I suspect that balanced investors and those overweight to real estate will be quite pleased with their positions."
National Research Manager for the Property Council of Australia, John Nguyen, also observed that, "Over the last decade, real estate has delivered annualised rates of return very similar to listed equities. Significantly, these returns have been achieved with much lower volatility and therefore reduced investor risk. (Volatility for real estate was 1.73% p.a. compared to 8.95% p.a. for the All Ordinaries). Given recent fluctuations in world financial markets, we could see an increasing allocation to real estate as investors get off the equities rollercoaster."
In summary the headline returns for the 12 months ending 30 June 2007 are as follows;
- Australian composite: income return: 6.8; capital return: 9.5; total return: 16.9
- Australian retail: income return: 6.7; capital return: 10.0; total return: 17.3
- Australian office: income return: 6.7; capital return: 10.2; total return: 17.5
- Australian industrial: income return: 7.8; capital return: 3.7; total return: 11.8
A closer look at the data reveals that:
- Yield compression continues. Income returns have fallen below 7% for the first time in over 15 years.
- The office sector is no longer the poor cousin to retail.
- Melbourne and Sydney office assets have shown the best improvement in returns.
- The dynamic duo of Perth and Brisbane continue to shine.
- Melbourne and Sydney office assets have shown the best improvement in returns.
- It should also be noted that the comparatively low returns from the industrial sector result is at least in part a result of a relatively low proportion of the sample having been valued during the June quarter and, a comparatively small shift in yields (less than 25 basis points for this quarter).
Background
The Property Council/IPD Index now tracks the performance of around 700 assets worth in excess of $82 billion. It has been the most comprehensive indicator of direct property performance in the country with data going back to 1984.
The sub-sector representation of the index is: Retail 55%, Office 37% Industrial 7% Other 1%.
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Source: IPD
