Commercial property capital growth slides

Capital growth is in negative territory for nearly all commercial asset types and locations across the country, according to an expert.

Ray White Group, Head of Research, Vanessa Rader, said despite heavy losses in capital growth, encouragingly, income returns continue to maintain, resulting in total returns for some asset types staying in positive territory.

“The office market has felt the brunt of these losses, with both non-CBD and CBD office markets recording -12.6 per cent and -11.9 per cent capital losses respectively over the past year,” Ms Rader said.

“However, looking city-by-city, there is still some positivity around.

“Perth CBD remains the stand out office performer this period, despite capital growth recorded at -5.7 per cent, income returns of six per cent offset this keeping total returns in positive territory, notably in the premium and A-grade sector.

For the retail sector, she said total returns showed greater optimism. 

“There has been a flurry of shopping centre transactions so far this year, testament to increased confidence in this sector,” she said.

“However, there is no doubt these corrections have spurred on spending with capital declines recorded across all retail types in all locations. 

“Although, strong income growth has resulted in uplifted total returns for some assets.” 

Overall, secondary retail has outperformed with total returns of 1.5 per cent, while prime retail achieved 0.3 per cent, she said.

Ms Rader said strong income improvement for Western Australia and Victorian neighbourhoods and sub-regional centres, resulted in total returns both at 2.4 per cent. 

“Victoria outperformed again for major, super regional centres recording 5.3 income growth to keep total returns at 1.4 per cent, while New South Wales total returns sat at 0.6 per cent,” she said.

She said industrial remains the golden child of the commercial property sector. 

“Limited supply and constrained land saw returns for built form remain elevated,” she said.

“Secondary industrial actually outperformed prime this period with positive capital growth, up 4.6 per cent for a total gain of 8.6 per cent – the most outstanding result of all asset types and locations across the country. 

“Results trended well ahead of the prime market with total returns of just 0.3 per cent. 

“Quality results in warehousing, industrial estates spurred on appreciation in these total returns.”

2YWZh limited markets show capital growth but total returns still positive for some locations asset types

Ms Rader said Western Australia led the charge with 6.5 per cent total return (albeit just 0.1 per cent representing capital growth). 

“Total returns for NSW hit 2.9 per cent with a small 0.1 per cent capital decline,” she said.

“However, looking more locally, Sydney’s Central West has shown outstanding results, recording capital improvements of one per cent this period to grow total returns to 4.9 per cent. 

“Despite Sydney’s Outer West and South still seeing capital declines, total returns remained positive, both at 2.7 per cent. 

“Highlighting pockets of positivity still can be found across the broader commercial property market.”

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